Asset Depletion, also known as Asset Utilization or Asset Amortization is the creation of an income stream from specific asset types to use as qualifying income. It is designed for borrowers with substantial and seasoned liquid funds. This income source does not meet Appendix Q standards and therefore, must be categorized as a non-QM loan. Redwood Trust and SG Capital both allow the use of assets as income on their non-QM programs with guidelines that can help qualify more borrowers.
Redwood calculates the income the same as a mortgage payment (P&I), utilizing a 3% rate of return on qualified assets as listed below:
- Unrestricted retirement and non-retirement assets for borrowers greater than 59.5 years old;
- Unrestricted non-retirement assets for borrowers less than 59.5 years old;
- Minimum of $500,000 after down payment, closing costs, and required reserves;
- Assets must be discounted according to type:
- 100% stocks/bonds/mutual funds
- 70% retirement accounts >59.5 years old
SG takes a different approach. They amortize the assets over a 10-year period (Eligible assets/120) with no rate of return. And, they even allow the use of equity in other residential property owned in the calculation when the subject transaction has a maximum LTV of 65% and a minimum credit score of 700. Additional criteria include:
- Max LTV of 80%;
- Minimum of $450,000 after down payment, closing costs, and required reserves;
- Lesser of $1mm or 1.25x loan amount before closing;
- Assets must be seasoned 120-days;
- Assets must be discounted according to type:
- 85% stocks/bonds/mutual funds
- 80% retirement accounts
- 75% of REO as documented by an exterior appraisal or BPO (must be 100% owner)
- Not allowed on non-owner, cash-out, or loans with recent credit events.
The guidelines will differ between the various programs that each investor offers. Please refer to the most recent seller guide for complete details.