Asset Depletion Mortgage Loan: An Informative Guide

Last Updated on March 8, 2025 by Amrita Das

An asset depletion mortgage is a type of home loan that allows borrowers to use their assets, such as retirement accounts or investments, as income for qualifying purposes. This can be beneficial for individuals who have a high net worth but may not have traditional sources of income, like W2s or tax returns.

By including these assets in the calculation, borrowers may be able to qualify for a larger loan amount and purchase their desired home. However, it’s important to understand the requirements and guidelines set by lenders for this type of loan before deciding if an asset depletion mortgage is the right choice. So, let’s read this guide to learn the details of this unique mortgage program.

Table of Contents

What is an Asset Depletion Loan?

An asset depletion loan, also known as ‘asset dissipation,’ is a type of mortgage that allows borrowers to qualify for a loan using their substantial assets instead of income from employment. This can be beneficial for individuals who may have a large amount of assets but do not have a steady source of income.

To calculate the borrower’s monthly ‘income,’ their total liquid assets are divided by 360 months, which is the typical mortgage loan duration. This calculation shows that the borrower has enough funds to tackle the loan even without consistent income from employment.

It is important to note that using an asset depletion program does not mean that the borrower has to solely rely on their assets for qualification. It can be used as an extra source of ‘income’ on top of any regular earnings they may have.

Moreover, borrowers who use this program do not need to provide proof of any added sources of income. As long as their assets are sufficient enough to cover the mortgage and living expenses, they can qualify for the loan solely based on this calculation.

Additionally, it is not necessary for borrowers to cash in their assets immediately. The assets are solely used to indicate the ability to make mortgage and living payments.

What Types of Assets Can Be Used for Mortgage Qualifying?

When it comes to mortgage qualifying, not all assets are eligible. Lenders typically only consider certain types of assets, including:

Savings, Checking, and Money market accounts
Certificates of Deposit (CDs)
Stocks, bonds, and other investment funds
Retirement account such as a 401(k) or IRA
Balance in other real estate properties owned
Business right interests
Other easily verifiable and liquid assets

It’s important to note that not all retirement accounts will be accepted, as penalties may apply for accessing funds before a certain age. If the borrower is not close to retirement age, lenders may solely consider limited credit or without credit at all for advantage in retirement accounts.

How Much of Your Assets Really Count?

It’s common knowledge that mortgage lenders will assess your assets when considering you for a loan. However, not all assets are weighed equally. Lenders use different criteria and calculations to determine the value of your assets, which can greatly affect your overall eligibility and interest rates.

Let’s take a closer look at the various types of assets and how they may be counted towards your mortgage income:

Liquid Assets: These include savings accounts, checking accounts, money market accounts, and other easily accessible funds. In most cases, lenders will consider 100% of these liquid assets towards your mortgage.
Investments: Stocks, bonds, mutual funds, and other investments are often valued at 70-80% of their current market value. This is due to the potential for fluctuations in the market and the risk associated with these types of assets.
Retirement Accounts: Lenders may only take into account 70-80% of your retirement funds, depending on your age. This is because tapping into these accounts before retirement can incur penalties and affect your long-term financial stability.
Other Real Estate Holdings: If you have equity in additional properties, lenders will typically factor in a percentage of that equity towards your mortgage eligibility. The exact amount varies from lender to lender.
Business Ownership: Similar to real estate holdings, owning a business can also contribute towards your overall assets. However, the lender’s assessment of your business value will determine the percentage that is counted towards your mortgage.

How Does an Asset Depletion Loan Function?

The concept of an asset depletion mortgage is a unique way to qualify for a home loan by utilizing your liquid assets. This means that high-end possessions, such as cars or art, cannot be used to secure the loan.

In order to qualify for an asset depletion mortgage, you must have a significant amount of liquid assets. For example, if you own $1,000,000 in both retiral and investment accounts and $500,000 in both checking and savings accounts, you could use up to $1,200,000 in total assets to secure the loan.

Once your eligibility has been determined by the lender based on your assets, they will then calculate your monthly income using the terms of the loan. It’s important to note that meeting the lender’s criteria, including a minimal credit score and down payment requirements, is still necessary for approval.

While assets play a crucial role in an asset depletion mortgage, other factors such as credit score and down payment are also taken into consideration by lenders. Essentially, this type of loan operates similarly to traditional mortgages.

Unlike traditional mortgages, however, asset depletion loans do not require proof of employment income. Instead, the value of your assets serves as your income for qualification purposes. This means you will not need to provide documents like tax returns or pay stubs.

However, it may still be beneficial to have this information on hand as lenders may request it in order to fully assess your financial situation.

For example, if you have both employment income and assets, a lender may want to see both in order to determine your eligibility and loan amount. This highlights the importance of having all relevant financial information readily available when applying for any type of mortgage.

Who Can Gain from an Asset Depletion Mortgage?

An asset depletion mortgage can be a great option for those who have difficulty demonstrating consistent income but possess substantial asset balances. This could include the following types of borrowers:

Individuals who are self-employed and have limited income documentation
Borrowers with minimal or no income, but notable assets
Retirees or those approaching retirement age

Other Qualification Requirements

In addition to the general requirements mentioned earlier, there are some other eligibility criteria that must be met in order to qualify for an asset depletion mortgage. These include factors such as age, down payment, and credit score. Let’s closely examine each of these criteria.

Firstly, if you are planning to use your retirement accounts (such as IRAs or 401ks) to qualify for an asset depletion mortgage, you will need to be at least 59 ½ years old. This is because lenders want to ensure that you have enough funds available for your retirement and are not jeopardizing your financial stability by using them for a mortgage loan.

Another important requirement is the down payment. Since asset depletion loans carry a higher risk for lenders, they often require a larger down payment – typically around 20% of the total loan amount. This not only reduces their risk but also shows that you have sufficient financial stability to make a significant upfront payment.

Lastly, your credit score also plays a crucial role in determining your eligibility for an asset depletion mortgage. While different lenders may have varying requirements, most prefer to see a minimum credit score of around 650.

However, some may welcome scores as minimum as 620. It’s always a strong idea to work on boosting your credit score before applying for any loan, as it can help you secure better interest rates and terms.

Asset Depletion Mortgage Benefits

An Asset Depletion Mortgage offers a variety of benefits for potential borrowers. These include:

Alternative qualification method: Rather than relying on traditional factors such as tax returns and employment verification, asset depletion mortgages allow you to use your liquid assets as proof of financial stability.
Flexibility in employment status: Unlike other types of loans, an asset depletion mortgage does not require you to be employed or have a steady income in order to qualify.
Higher borrowing limit: With the potential to borrow up to $3 million, this type of loan is ideal for those looking to purchase high-value properties.
Debt-to-income ratio not considered: In most cases, your debt-to-income ratio will not be calculated in the time of application and underwriting process, making it easier to qualify for the loan.
Versatility in property type: Asset depletion mortgages can be used to finance a primary house, leisure home, or investment property. This provides flexibility for borrowers in their real estate investments.

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