Lately, I've seen an increasing number of mortgage scenarios exploit a qualifying feature known as asset utilization (AU). Depending on the investor, this might also be known as asset depletion, asset amortization or an asset-based mortgage. This alternative qualification method can be a real benefit to a retired borrower or to a buyer/owner who is not of retirement age but who has amassed a sizable asset portfolio (stocks, bonds, mutual funds, cash equivalents, etc.). Regardless of what it's called I'm going to demonstrate how thinking outside of the employment-based income box can open up a world of home loan possibilities.
How Does it Work?
First and foremost, an asset utilization loan is NOT a stated income loan. We're not going to party like it's 1999. This is also not a reverse mortgage. With AU, we're going to look at a borrower's total liquid assets and we're going to apply a formula that will create a hypothetical income stream. Assets do not need to be liquidated, distributions do not need to be taken and money does not need to be pledged or moved. But we'll take our allowable asset total, which discounts for reserves and risk of the asset class itself, and we'll come up with an equivalent monthly income figure. This number can, in turn, be used to replace or supplement traditional employment-based income.
Who Can Use It?
Most of our AU progams are available to all borrowers, regardless of date of birth. However, depending upon age, certain assets may or may not be allowed in the calculation. It would be a safe assumption and example that for a 45-year old borrower, we would not be able to asset deplete a retirement account. However, for that same borrower, non-retirement investments would all be eligible for the AU formula. Let's take the case of a tech entrepreneur who is between start-up gigs. She is in her late 30's and has $2MM in stock and investments. We can't qualify any salary or self-employed income but we certainly can look at the assets and derive a monthly income. And if it fits her scenario, she could be eligible to buy today, even without verifiable employment. More traditionally, let's take our 69-year old retiree. He has $3MM "in the bank," wants to buy a home worth $1.1MM and doesn't want to pay cash, which would erode the value of his portfolio (the same one that will produce the income on which he'll largely depend in years to come). Without liquidating anything other than the down payment and closing costs, the borrower can use an AU program and seek to qualify for a mortgage that meets his needs.
What About the Math?
We have a handful of investors that offer AU qualifications and they all work slightly differently. Their programs will range from ARM to fixed and their formula for the generation of asset-based income will yield, for example, a monthly stream of between $3000 and $6000 per $1MM in assets. And remember, this income can be used in addition to other qualifiable income such as social security, pensions and regular employment's wages or self-employed documented income. The key concept is that AU income can be used both 'in place of' and 'in addition to.' It's a great feature in the hands of an expert loan advisor but not all lenders have these programs available and even of those who do, few loan originators take the time to master them.
So before I need a nap, remember that if you are retired from employment, but not necessarily from participating in the housing market, we have a mortgage program you may wish to consider. Call me today if I can be of service.
On golden pond,
Vice President of Mortgage Lending
Cell/Text: 415-367-5959 Fax: 415-366-1590
Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
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