December 20, 2014

Using Assets as Income to Qualify For a California Mortgage Loan

 

Asset based lending in CA Bay Area Cities like Walnut Creek, Lafayette, Orinda and Pleasant Hill is alive and well.

Did you know that if you have a large amount for liquid assets in a mutual fund or stock account, but you are having trouble documenting income as defined by the IRS on your tax returns you can still qualify for a loan using asset based income?

That’s right Jason Wheeler at C2 Financial is doing a ton of jumbo lending for people based on liquid assets.

Here are some of the specifics… or you and email us and we will get in touch with you with a fast custom quote for your pledged assets or asset jumbo portfolio depletion mortgage lending scenarios.

 

Asset Based Lending CALCULATION SPECIFICS:

For use on a mortgage calculator such as an HP 12C… amortized payment calculation:

 

Asset Base Lending Step 1.

Determine the Present Value of the Assets:  the total amount of eligible assets, less down payment, less required reserves of 12-months total debt service (PITI on the subject property plus all other payments including auto, credit cards, and other mortgage payments).

Eligible assets must be cash or cash equivalent, trust funds, investment portfolios (stocks, bonds, mutual funds), and retirement accounts only if the borrower is of retirement age (62).

Ineligible assets include equity in REO, private stock, and retirement accounts if the borrower is not of retirement age (62).  If you’re unsure about a particular asset, email me….

No double-dipping…if your already receiving income from the assets which is reflected on the 1003 or lending application, then you may not use Asset Depletion on those same assets…it would considered double-dipping.

Asset Base Lending Step 2. 

Rate:  always use 5%  -  we could use a higher rate if it was necessary and with evidence that a higher rate is warranted. Sometimes rates are lower but with current market conditions 5% is a goo place to start. If you would like a custom quote on qualifying for a mortgage loan using your assets you can always email us.

Asset Base Lending Step 3. 

Amortization:  subtract the borrower’s age from 85 and use that as the amortization period but no more than 30 years and no less than 10 years.  For example, if the borrower is 61 years old, then the amortization period is 24 years (85-61).  If there is more than one borrower, then use the borrower whose name appears on the asset account.  If both borrowers’ names are on the asset account, then use the lower age.

Asset Base LendingStep 4.

Resolve for Payment and include on the 1003:  the resulting number is then added to the existing income for DTI purposes – on the 1003 under “Other Income”.

 

Asset Based Loan EXAMPLE 1:  43-YEAR OLD BORROWER:

Borrower’s income is $5,000/month but DTI is too high to qualify.

Borrower has $1,000,000 in liquid assets.

The underwriter uses Asset Depletion to help with the DTI by running a mortgage calculation at 5% over a 30 year amortization on the borrower’s $1,000,000 assets.  Why a 30-year amortization?  Because the borrower’s age (40) subtracted from 85 is more than 30 years.

Calculation:   $1,000,000 at 5% over a 30-year amortization:

Result:  $5,368/month additional income for qualifying purposes…put this on the 1003 under “Other Income”. This amount is added to his existing $5,000 income so now he has $10,368/month for qualifying purposes.

 

Asset Based Loan EXAMPLE 2:  73-YEAR OLD BORROWER:

Borrower’s income is $5,000/month but DTI is too high to qualify.

Borrower has $1,000,000 in liquid assets, including a retirement account.

The underwriter uses Asset Depletion to help with the DTI by running a mortgage calculation at 5% over a 12 year amortization on the borrower’s $1,000,000 assets. Why a 12-year amortization?  Because the borrower’s age (73) subtracted from 85 equals 12 years. This gives a more favorable calculation for the borrower.

Calculation:   $1,000,000 at 5% over a 12-year amortization:

Result:  $9,250/month additional income for qualifying purposes…put this on the 1003 under “Other Income”. This amount is added to his existing $5,000 income so now he has $14,250/month for qualifying purposes.

 

Asset Based Lending NOTES:

The target DTI is always 40%. (can possibly go higher case-by-case with exception approval) Asset Depletion can be used on any scenario, at any LTV, and with any product…there is a pricing adjustment applied to the lock.

Asset Depletion may be used for Foreign Nationals on an exception basis but in that case the assets must be in U.S. accounts.

Asset Depletion can be used together with Pledged Assets. However, we cannot use the asset in pledged status in our depletion calculation.

Remember if you would like a custom quote or if these calculation just are not making sense you can call or email us for a quick custom quote on your jumbo asset based lending scenario.

About Jason Wheeler - Bay Area Mortgage Lender

Jason Wheeler got started with a lending business in business in 2003 Jason has become a top producer for one of the largest most well respected brokers still in the lending business and producing quality loans in California today. For fun... Jason loves to write and share on his blog (what you are reading now) hangs with his wife daughter and dog and love to eat burritos and pizza. IF YOU LIKE WHAT YOU'RE SEEING GO VIP HERE

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