Guidance for documenting access to income and business liquidity If the Schedule K-1 reflects a documented, stable history of receiving cash distributions of income from the business History of Receipt: Two or more years of receipt of a particular type of variable income is recommended; Access forms, announcements, lender letters, legal documents, and more to stay current on our selling policies. prior to closing in Section 2b using the asset type Proceeds from Sale of Non-Real The table below provides references to recently issued Announcementsthat are related Schedule F - Profit or Loss from Farming (Chapter 5304) Net Farm Profit or Loss (+/-) (+/-) Non-taxable portion of recurring cooperative and CCC payments (+) (+) Form 91 may be used to analyze the Borrower's tax returns and calculate self-employed monthly gross income. B3-6-05, Monthly Debt Obligations. be averaged. Fannie Mae and Freddie Mac: Basics. Without asset depletion, these borrowers may not qualify for a mortgage loan despite their significant assets. If the income is verified to be nontaxable, and the income and its tax-exempt status current period overtime and year-to-date earnings and document the analysis before Depository Assets. Net documented assets are equal to the sum of eligible assets minus: (a) the amount of the penalty that would apply if the account was completely distributed at the time of calculation; and. By factoring in a borrowers qualifying assets and ability to repay the loan, lenders can offer more flexible options and help borrowers achieve their homeownership goals. Depository Assets. The following table contains examples of income types with and without defined expiration Under the new guidelines, you'd still be able to deplete $210,000 of $300,000 in savings. Unrecorded assignments of received on March 31st by three months produces a much higher, inaccurate monthly average. If you have questions about money, I will help you find the answers at www.MichaelRyanMoney.com. funds and enter $20,000 as retirement funds. In fact, there are plenty of folks who fit into non-traditional income categories, such as: If any of these apply to you, but you have significant assets such as savings, investments, or retirement accounts you may qualify for an asset depletion mortgage program. A key driver of successful homeownership is confidence that all income used in qualifying B5-5.1-02, Community Seconds Loan Eligibility . Freddie Mac Asset Depletion Mortgage Program. closing. & Insights, Pricing & Please reach out to your lender for precise calculations. California Residential Mortgage Lending Act (CRMLA) License Number - 603L284 California - DFPI Residential Mortgage Lending Act License Number - 41DBO-13449. Asset depletion mortgage with asset depletion & asset dissipation. (In other words, the amount of the bridge loan should be subtracted In this case the loan amount would be based on retirement assets only, with a 10% reduction since we were younger than 59-. Here's a quick look highlighting some key Fannie Mae guidelines for conventional loans. Do you have Trust assets with totally unrestricted use? . Are you retired with very little fixed income (or no income)? Its purpose was to provide lenders with funding to make home loans by buying the lender's mortgages. Courts may also consider dissipation as a factor when dividing marital property and awarding spousal support or alimony. The annuity stream is added to the applicant's other income when evaluating the applicant's ability to make mortgage payments. account, such as a checking or savings account. reasons why these amounts may be inconsistent yet still eligible for use as qualifying Typically, borrowers should expect to need: Lets say a 49-year-old mortgage borrower has $2,000,000 in liquid assets, and another $500,000 in retirement or investment accounts. Closing. income documentation may be necessary to support a three-year continuance. MGIC's self-employed borrower (SEB) and income analysis worksheets are uniquely suited for analyzing: Cash flow and YTD profit and loss (P&L) Comparative income. Can help borrowers with irregular income or no income qualify for a mortgage. The Colorado broker ran the numbers for an asset depletion loan as defined by Fannie Mae. The borrower still qualifies even if the assets require penalties and tax reductions for early withdrawal. Borrowers need to intentionally deplete their assets. How to do a hard refresh in Internet Explorer. Start your Free Trial. Perhaps it was because Fannie Mae requires no less than a 360 month period, or perhaps it was only to be more conservative from an underwriting standpoint.) Max 90% LTV for Purchases and Rate & Term with No MI. For depository assets (checking and savings accounts, money market funds, and certificates Heres how their monthly income might be calculated. Fannie Mae applications are currently compatible with computers that run on the Microsoft Windows 8.1 Enterprise . You have entered an incorrect email address! The lender must verify that the particular source of income is nontaxable. But keep in mind that loan guidelines vary by lender. information from other Fannie Mae published sources. analyzed to determine that both the current overtime earnings for the period and the Secured Borrowed Funds. A hard refresh will clear the browsers cache for a specific page and force the most recent After taking out $10,000 for closing costs and dividing by 360, the. Freddie Mac Asset Depletion Mortgage Lending Guidelines. Understanding asset depletion and its implications can be a key factor in maximizing mortgage lending opportunities. if the appropriate documentation is provided. according to the requirements of 620. Individuals who change jobs frequently, but who are nevertheless HSH.com, the mortgage-information firm, says, for example, that a borrower with $1 million in assets could count $700,000. Do you have 25 to 30 percent for the down payment. There are a few facts and figures borrowers need to understand before diving into an asset depletion program. Liquidity ratios. Ask Poli features exclusive Q&As and moreplus official Selling & Servicing Guide content. Execution, Learning & Insights, Pricing & B3-6-05, Monthly Debt Obligations. It involves calculating a borrowers ability to repay a mortgage loan based on their liquid assets, such as retirement accounts, investment accounts, money market accounts, and other similar assets. Some . When expanded it provides a list of search options that will switch the search inputs to match the current selection. Center, Apps (For best result, pose your search like a question. specific income source has a defined expiration date. (foreign income), How to do a hard refresh in Internet Explorer. Self-Employment Income. Totally valid, and plausibly cheaper than the mortgage. Some key factors that lenders consider when evaluating asset depletion include the type and liquidity of the assets, the estimated number of months the assets will last, and the borrowers credit score. documentation may differ from the requirements described above. See For a comprehensive list of resources such as access forms, announcements, lender letters, notices and more. (For best result, pose your search like a question. Asset depletion is a crucial factor in determining a borrowers ability to repay a mortgage loan, as it takes into account their total liquid assets, including retirement accounts, investment accounts, money market accounts, and other types of significant assets. documentation to satisfy the standard documentation requirements in this Chapter. Asset depletion mortgage loans offer a significant advantage to borrowers in terms of debt-to-income ratio requirements. Combined with the borrowers interest rate, this number will help determine what loan amount they qualify for and how high of a home price they can afford. Self-employed home buyers, for example, may not have the W2s or employment history required for traditional mortgage qualifying. As a financial planner, I helped people from all walks of life. Overall, intentional dissipation is a controversial strategy that should be carefully considered before being used by borrowers. Fannie Mae and Freddie Mac require borrowers to have at least a 620 credit score to qualify for Conventional Loans Most FHA 203k Lenders will require that FHA 203k mortgage borrowers have 640 credit scores to qualify for FHA 203k Loans VA Loan does not have any credit score nor debt to income ratio requirements Fannie Mae customers! Please take a few minutes to watch a short training video. With an asset depletion mortgage, your monthly income is calculated by dividing your total liquid assets by 360 months (the duration of most mortgage loans). If a borrowers income is validated by the DU validation service, lenders are not Additionally, Fannie Mae requires a debt-to-income ratio of 36% or lower, while Freddie Mac allows a higher ratio of up to 45%. or corporations, or any other type of business structure in which the borrower has Note:Because these income sources have a defined expiration date or allow the depletion Borrowers should be aware of the eligibility requirements, documentation requirements, and factors that lenders consider when evaluating asset depletion. Enter the amount of a bridge (or swing) loan in the asset section 2a of the loan application. Higher interest rates and fees compared to traditional mortgages. Higher interest rates and fees compared to traditional mortgages. Asset depletion loans Retired borrowers with a high net worth may opt for retirement mortgages that let them convert their assets to income. income types see They also need to meet mortgage lending requirements. The new rule per Freddie Mac Asset Depletion: A borrower may use 70% of the balance of an investment account and divide that number by 240 months. The secured loan amount should be subtracted from the market Allows borrowers to use their assets to qualify for a mortgage. From understanding the eligibility requirements to calculating your asset depletion or dissipation, well cover everything you need to know to make an informed decision. A borrower must only be considered to have unrestricted access to a 401(k) or IRA, SEP, Keogh retirement account if the borrower has, as of the time of calculation, the unqualified and unlimited right to request a distribution of all funds in the account (regardless of any possible tax withholding or applicable penalty applied to such distribution). This calculation will determine the borrowers asset depletion income. Its important for borrowers to have a clear understanding of the documentation requirements and to be prepared to provide all necessary documents to ensure a smooth application process. But they can often get a bank statement loan that looks at regular monthly cash deposits instead of their tax returns. The lender is not expected to request additional Its also important to be aware of the asset depletion program guidelines and the maximum loan amount that can be obtained based on qualifying assets. A 30% down payment coming from different assets would be required. This video helps you understand what an escrow account is and how it can make managing your home's property taxes and insurance premiums easier. This The exact calculations vary by lender which means its extra important to compare different mortgage lenders and find an asset depletion program that fits your needs. Asset (liquid) may be entered for other types of assets that will be used for the In this section, we will define asset depletion and explain why it is an essential consideration for mortgage lenders. to prior years earnings using the borrowers W-2s or signed federal income tax returns Do not include the amount of the bridge loan in any other liquid asset. A hard refresh will clear the browsers cache for a specific page and force the most recent source (two years returns); uses interest and dividend income to qualify; uses tip income reported on IRS Form 4137 that was not reported by the employer on Asset (Depletion) Used as Income I613.B 2 unit primary residence permitted Max 80% LTV/CLTV/HCLTV Auto Allowance Income and Debt Approach I613.C Add full amount of allowance to borrower'smonthly income Add full amount of monthly auto expense in the monthly debt obligations Employed by a Relative or Any Interested Party to (Fannie Mae) Maximum Loan Size: $726,200. Sounds like that's what you did. Note: This is a general comparison and may vary by lender and specific mortgage programs. When applying for an asset depletion mortgage loan, borrowers should be prepared to work closely with underwriters. Access forms, announcements, lender letters, legal documents, and more to stay current on our selling policies. Assets must be liquid and available to the borrower and must be sourced as one of the following: If a penalty would apply to a distribution of funds from the account made at the time of calculation, then the amount of such penalty applicable to a complete distribution from the account (after costs for the transaction) must be subtracted to determine the income stream from these assets. that is subject to time limits, such as a contract employee or a tradesman; receives income from capital gains, royalties, or other miscellaneous non-employment Fannie Maes underwriting guidelines emphasize the continuity of a borrowers stable Having Issues with Seeing this Page Correctly? Can help borrowers with irregular or self-employment income qualify for a mortgage, Generally come with higher interest rates and fees, Allows borrowers to use their assets to qualify instead of employment income, May have stricter eligibility requirements, May offer more flexibility in terms of debt-to-income ratio, May have a shorter loan term than traditional mortgages, Uses assets to calculate income for mortgage qualification, Uses employment income to calculate income for mortgage qualification, Generally has lower interest rates and fees, Shorter loan term, usually around 15 years, May have more flexible eligibility requirements, Minimum asset value required, usually around $500,000, Provide documentation of assets, including bank statements and investment accounts, Find a lender that offers asset depletion mortgages, Work with underwriters to provide necessary documentation. 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