Heard of the term “asset rich but cash poor”?
It’s a common issue among entrepreneurs “working for equity” or high net worth investors who report low income but have sizeable real estate portfolios.
Traditional banks require pay stubs, employment letters, and credit scores (we have fantastic programs for this as well), but many of us are not in the corporate world and require more flexible programs to suit the needs of this new emerging investor demographic.
This week we “launch” our new Asset Depletion program for investors who own a collection of real estate assets and use the income from the portfolio to qualify as opposed to using your employment income.
Asset depletion, or ‘asset dissipation,’ is a way to qualify for a loan using substantial assets instead of income from employment. There is no AUM (Assets Under Management) or encumbrance of your portfolio at all, rather, it is simply used to qualify for a loan.
With an AM’s Liquid Portfolio Mortgage, we calculate your monthly ‘income’ by dividing your total liquid assets by the duration of most mortgage loans, 360 months.
This way, you can prove your ability to service the debt without regular income from employment – great for entrepreneurs!
You do not have to qualify solely based on your assets to use funds from asset depletion. You may use it as an additional ‘income’ source on top of any regular income you currently receive.
That said, borrowers who use an asset depletion program to qualify do not need to show any other sources of income or employment. If their assets are sufficient to service the mortgage – as well as regular living expenses – they can qualify based solely on that calculation.
What makes this program an excellent option for HNW clients is the mortgage borrower is not required to cash in their portfolio or encumber in any manner. The assets are only used to demonstrate an ability to make the mortgage payments.
- Checking or savings accounts (bank must have a U.S. presence)
- Money market accounts (bank must have a U.S. presence)
- Certificates of Deposit (CD) (bank must have a U.S. presence)
- Investment accounts such as stocks, bonds, and mutual funds (bank must have a U.S. presence)
- Retirement accounts (bank must have a U.S. presence)
Asset depletion mortgage example:
Take for instance, a 59-year-old mortgage borrower has $3,500,000 in liquid assets, and another $300,000 in retirement or investment accounts.
This is how their monthly income will be calculated:
- Retirement account – 70% of $300,000 = $210,000
- Total assets counted – $3,500,000 + $210,000 = $3,710,000
- Monthly income – $3,710,000 / 360= $10,305
In this case, America Mortgages will calculate the borrower’s maximum mortgage payment based on a monthly ‘income’ of $10,305.
Should you use an AM’s Liquid Portfolio Mortgage?
If you are wondering whether you are a good candidate for an asset depletion program, try answering these questions:
- Are you retired with little to no fixed income?
- Are you self-employed but with little to no “provable” income?
- Are your assets held in a bank with a U.S. branch or presence?
- Do you have Trust assets with completely unrestricted use?
If you answered YES to any of these questions, an asset depletion loan is an ideal solution for you.
For more information on AM’s Liquid Portfolio Mortgage, get in touch with us via email at [email protected]