Fannie Mae Asset Depletion Mortgage- Everything You Need to Know

Getting a mortgage can be difficult if you do not have a steady source of income. Maybe you’re retired, self-employed, or most of your money is in savings or investments. You can afford a home, but lenders only worry about consistent income, which can be annoying.

That’s where Fannie Mae asset depletion mortgage program comes into play. It allows you to use the money, savings, investments, or retirement accounts you already have to qualify for a loan. Asset depletion loans provide a powerful alternative for borrowers who are asset-rich but income-poor. That makes sense, right?

This blog is here to break it all down for you. We’ll talk about the good stuff (like why it’s helpful), what you’ll need to qualify, and some things to watch out for. By the end, you’ll have a pretty good idea if this is the kind of mortgage option that works for you.

What’s Fannie Mae’s Asset Depletion Program?

This program lets you count your assets (like your savings or investments) as income when you’re trying to get a mortgage. Instead of looking at a paycheck, the lender looks at your money and says, “Okay, you’ve got enough to make the payments.” 

This is a game-changer for retirees, people who work for themselves, or anyone with a lot of money saved up but not much traditional income.

It’s not complicated, but it can make a huge difference for someone who’s had trouble qualifying for a mortgage the old-fashioned way.

Here's a quick breakdown of how lenders turn your savings and investments into a qualifying income for your loan:

1. Add Up Your Assets: 

First, total all your eligible assets, including cash, savings, investments, and retirement funds.

2. Deduct Necessary Expenses:

Next, deduct funds required for the down payment, closing costs, and reserves. Additionally, subtract any penalties incurred from early withdrawal from retirement accounts.

3. Calculate Monthly Income:
   Finally, divide the remaining amount by the number of months in the loan term (usually 360 months for a 30-year mortgage). This gives a monthly income figure that lenders use to see if you qualify.

Asset depletion might sound complicated, but it’s pretty straightforward. Let’s look at some popular benefits of this mortgage loan. 

Benefits of Asset Depletion Loans: An In-Depth Look

Asset depletion loans are a unique option for borrowers who would otherwise have trouble securing a home since they don’t have a steady paycheck. Here are some key reasons why this loan would be perfect in such circumstances:

Flexibility Without Traditional Income

One of the main benefits of asset depletion mortgages is that they can be used by people who don’t have a steady job or regular paycheck. It is ideal for those who are:

• Living off savings or retirement accounts at retirement.
• Self-employed with variable income.
• Investors or freelancers earn through non-traditional means.

Lenders use financial reserves instead of jobs or salaries to evaluate if a borrower can afford a mortgage. This flexibility lets many who wouldn't qualify in.

No Dependence on Employment History 

Traditional mortgages often require stable income and jobs. Asset depletion replaces this prerequisite with liquid assets. Borrowers are not required to provide:

• Recent pay stubs.
• Employee verification.
• A long history of steady income.

This is especially helpful for retirees and people seeking financial independence.

Utilization of Existing Assets for Mortgage Qualification

Borrowers can use their savings, investments, and retirement funds directly to meet mortgage requirements rather than liquidating assets to generate income. 

This eliminates the need to liquidate equities or investments, which may impact tax events or long-term financial objectives. Borrowers can use their wealth for house financing via asset depletion loan qualification without sacrificing their finances.

Mortgage approval is easier when lenders compute monthly “income” based on eligible assets' total worth.

Accessibility to Competitive Interest Rates

Asset depletion loans are considered conventional credit products. They have lower rates than regular mortgages if they meet Fannie Mae guidelines.

Compared to other non-traditional loans, private mortgages or hard money loans, borrowers can take advantage of reduced rates when they go the asset depletion route. 

Enhanced Borrowing Power

Asset depletion loans can increase your borrowing power by allowing you to use your assets. For example, if you have significant retirement savings or investment portfolios, you might qualify for a larger loan than you would with traditional income assessments.  Overall, this method lets you maximize wealth without sacrificing liquidity. 

Flexibility for Retirees and Investors

Retirees and investors are two groups that benefit significantly from asset depletion loans.

Retirees can buy a home with their savings or retirement funds even without income. 

Downsizers and movers can take advantage of this. These loans let property investors use existing assets to buy new ones without using revenue or liquidating holdings.

Simplified Process

Asset depletion loans are easier to get than mortgages. Lenders verify assets, not income structures. The asset depletion loan qualification process usually entails the following:

• Submitting account statements to demonstrate savings, investments, or retirement fund values.
• Avoiding complicated income documentation for traditional mortgages, especially for self-employed applicants.
• Simple calculations. To calculate qualified income, lenders divide asset value by loan period (e.g., 360 months for a 30-year loan).

Asset depletion appeals to wealthy borrowers without income verification because of its simplicity. Still, some eligibility criteria need to be fulfilled. Let’s explore these in further detail. 

Qualification Criteria for FNMA Asset Depletion

If you're considering using the Fannie Mae Asset Depletion program to qualify for a mortgage, it's important to understand the criteria lenders use to determine your eligibility. 

Here's what you need to know:

Eligible Asset Types

By now, we understand that your ability to qualify for an FNMA asset depletion loan depends on how many assets you have. Here’s the breakdown: 

• Liquid Assets: The application must include any savings accounts, checking accounts, cash, stocks, bonds, and mutual funds you have. These liquid assets are easy to access and are the main focus of the lender’s asset depletion calculations.
• Non-Liquid Assets: The lender must also consider some non-liquid assets, such as real estate or business holdings. These typically require more documentation and may be valued conservatively.
• Retirement Accounts (IRAs, 401(k)s): You’ll only be allowed to include accessible funds. Penalties or restrictions may apply if you're under the eligible withdrawal age. These penalties will also be factored into the calculation.

While the types of assets detailed above can help you qualify for a mortgage, make sure every asset you put up is fully accessible to you. Trust funds or assets that are not fully accessible (e.g., locked accounts) are usually excluded from the calculations.

Calculating Qualifying Income

Lenders use a formula to check if you have enough qualifying income based on your assets under the asset depletion method:

1. Start with Total Qualifying Assets
   Add up all eligible assets after accounting for inaccessible and ineligible funds, penalties, and reserves.
2. Apply the FNMA-Approved Divisor
   Divide the total qualifying assets by 360 months (the standard for a 30-year loan).
   Example: If you have $1,000,000 in assets, your qualifying monthly income would be $1,000,000 ÷ 360 = $2,777.78.

Your income, calculated using the FNMA asset depletion calculation guide, is then used to evaluate your ability to afford the mortgage.

Credit and Property Requirements

Your lender will check your credit and evaluate the property you want to purchase before approving you for a mortgage. Here’s what that entails: 

• Lenders typically require a minimum credit score of 620 or higher for conventional loans. Obviously, the higher your credit score, the better your chances of qualifying.

• Properties must meet Fannie Mae's standards. They usually approve asset depletion loans for:
  • Primary residences
  • Second homes
  • Investment Properties

Some properties, like manufactured homes or fixer-uppers, might need additional review, but it’d be best to be ready for them to be excluded.

If you have many assets but low income, Fannie Mae Asset Depletion offers flexibility. Before getting your mortgage loan, make sure you know the qualifying asset types, income calculation techniques, and credit/property requirements. 

Steps to Secure a Fannie Mae Asset Depletion Loan

It's relatively straightforward to get a Fannie Mae asset depletion mortgage.

Organizing yourself and collaborating with the appropriate individuals can make the process easy and stress-free. It's also a fantastic way to leverage your savings to purchase the house of your dreams!

Steps to Take actions:

Step 1: Assess Your Financial Situation

First, scrutinize your assets. To determine whether you meet the requirements, add up your retirement accounts, assets, and savings. Be sure to account for any penalties or charges, such as retirement account early withdrawal penalties. If your total assets seem to be in order, proceed to the next step.

Step 2: Research Lenders

Not all lenders provide asset depletion loans, so you'll need to do some research. Look for lenders who particularly adhere to Fannie Mae's criteria for this type of loan. Remember to browse around for the best rates and conditions while you're at it.

Step 3: Gather Documentation

You’ll need to prove you have enough assets to qualify. You need to present some documents, including bank account statements, investment summaries and retirement fund details. Don't forget to provide documentary evidence of any withdrawal restrictions that may be in effect. 

Make sure everything is clear and up-to-date so the lender has no doubts about your financial situation.

Step 4: Consult a Mortgage Expert

A knowledgeable mortgage expert understands the details of asset depletion loans and is here to help you navigate the process. 

For example, the experts at Equity Accress Group can handle asset depletion loans and make the loan application process simple. They work with you to use your savings and investments to qualify. 

You can trust them to follow Fannie Mae’s rules closely and help you every step of the way.

Step 5: Apply for the Loan

When you're ready, submit your application with all your documents. Then, get ready to discuss your assets and how you've figured them out! 

After that, you’ll just need to wait for the lender to review and (hopefully!) approve your loan.

Strategies to Maximize the Benefits of FNMA Asset Depletion

Thinking about getting an asset depletion loan? It’s a smart way to use your savings, but there are a few things you can do to really make it work for you.

Check If Your Assets Qualify

This loan only counts some of your savings, so focus on these. Cash, savings accounts, equities, and bonds are the easiest for lenders to use because they're accessible. Before using retirement accounts, make sure they're penalty-free, as limits may limit how much qualifies. 

Organizing your assets and ensuring they fit lender requirements might strengthen your application. 

Think About Your Retirement or Investment Plans

This kind of loan is an excellent tool for downsizing, allowing you to move into a smaller home while keeping your savings intact. 

You can use it to downsize, buy a smaller home, invest in properties to generate rental income or grow your portfolio. Asset depletion loans are a smart way to make the most of what you already have without needing a steady paycheck.

Combine It with Other Income

You can increase your borrowing power by combining your existing assets with other sources of income, such as social security, rental income, or a part-time job. This combo allows you to qualify for a larger loan, giving you more options when choosing a property. 

Additionally, lenders tend to view this as less risky, which could result in better interest rates or loan terms. Using your income and assets together is a smart way to take advantage of this opportunity.

Common Challenges in FNMA Asset Depletion

A Fannie Mae asset depletion loan is a powerful option, especially if you plan. You can maximize the benefits of this loan by qualifying your assets, aligning them with your retirement or investing goals, and combining them with other income streams. 

Asset depletion loans can be beneficial for some borrowers, but they have drawbacks. Here's a look at potential obstacles and how to overcome them:

Insufficient Asset Liquidity

One common issue is having assets that aren’t liquid enough to qualify. Non-liquid assets, such as property or business holdings, or restricted accounts, such as trust funds or retirement accounts, may not be eligible. 

Borrowers are often surprised when their asset pool turns out to be quite limited during Fannie Mae's asset depletion mortgage qualification. To meet the lender's requirements, you need adequate liquid, accessible assets like cash, equities, or savings.

Misunderstanding of Eligible Assets

Another issue is confusion about asset eligibility and valuation. Some assets are undervalued. For example, stocks and bonds may only be worth a fraction of their market value to account for market decreases. 

Similarly, retirement accounts for people of non-withdrawal age may have limits. Understanding lenders' asset evaluation guidelines can save time and minimize surprises throughout the loan process.

If you know the exact rules that lenders use to judge assets, you can save time and avoid shocks during the loan process.

Market Volatility

If your qualified income depends on investments like stocks or mutual funds, changes in the market during the approval process could affect it. A quick drop in the value of your assets could make it harder for you to borrow money. 

To reduce this risk, renters might want to have a mix of investments and stable, liquid assets so they have enough money to deal with any sudden changes.

Conservative Calculation Methods

Lenders tend to be cautious when calculating qualifying income through asset depletion. Since this method divides total assets by 360 months (for a 30-year loan), borrowers often receive less money than they can afford.

It also overlooks how people spend and manage their money. This careful approach may result in a lower loan amount, which may irritate some borrowers.

Not Suitable for All Borrowers

Asset depletion loans are not for everyone. People with lots of cash and liquid assets benefit most from them. This loan may not be your best option if most of your assets are in stocks you can't sell soon or if you don't have enough assets.  

Other loan options might be better for people who have little savings or who depend on regular income.

Comparing Asset Depletion to Other Mortgage Methods

If you’re looking at different ways to get a mortgage, you might wonder how asset depletion stacks up. Let’s break it down in simple terms so you can see how it fits your needs.

Traditional Income-Based Loans

Most mortgages depend on income and jobs. Lenders ask you to show pay stubs, tax returns, or W-2s to prove you can pay monthly. These loans are suitable only for people with regular income.

Asset depletion doesn't require paychecks. Instead, it examines savings and investments. That's why pensioners and self-employed people with inconsistent incomes benefit from it.

DSCR Loans (Debt-Service Coverage Ratio)

DSCR loans are perfect for real estate investors. Instead of checking your income, they look at the property's potential. For example, if you’re buying a rental property, the lender checks if the rent will be enough to support the mortgage. 

FNMA asset depletion focuses on you, not the property. It looks at your savings and figures out how much “income” they could provide. This makes it better for personal buyers or investors who want to qualify based on their own wealth rather than the property’s earnings.

Non-Qualified Mortgages (Non-QM)

Asset depletion loans are part of a group called non-QM loans. These loans are made for people who don’t meet the strict rules of regular mortgages. Other non-QM options include bank statement loans, DSCR, and interest-only loans.

Asset depletion is unique because it focuses on your savings, not your job or the property’s income. It’s ideal if you’ve got a lot of savings but no steady paycheck—perfect for retirees or people who’ve built up wealth over time.

Frequently Asked Questions

How does Fannie Mae asset depletion work?

Fannie Mae asset depletion lets you qualify for a mortgage by turning your savings, investments, or retirement funds into a monthly “income.” Lenders divide your total eligible assets by a set number of months (usually 360 for a 30-year loan) to calculate how much income you can use to qualify.

What assets qualify for asset depletion calculations?

Liquid assets like cash, savings, stocks, and bonds typically qualify. Retirement accounts, like IRAs or 401(k)s, may also count if they’re accessible without penalties. Non-liquid assets, like real estate or business holdings, usually don’t qualify unless the lender makes an exception.

What are the benefits of an asset depletion mortgage?

This type of mortgage is great for people without traditional income, like retirees or self-employed individuals. It lets you use your savings to qualify for a loan, doesn’t depend on job history, and can provide access to competitive interest rates.

Can retirees use asset depletion to qualify for a mortgage?

Yes! Asset depletion is quite useful for retirees. It allows them to use their savings and retirement accounts to qualify, even if they no longer have a paycheck or regular income.

Can asset depletion be combined with other income sources?

Absolutely. You can mix asset depletion with other income sources, like rental income, part-time work, or social security. This combination can boost your borrowing power and make it easier to qualify for a larger loan.

Is there a minimum asset requirement to qualify?

The minimum asset amount depends on the lender and the size of the loan you’re applying for. Generally, you’ll need enough liquid assets to cover the loan term (e.g., 360 months for a 30-year loan) and still meet the lender’s guidelines.

Are there any tax implications for using retirement funds in asset depletion?

Yes, there can be. Accessing retirement funds might trigger taxes or penalties if you’re under the eligible withdrawal age. It’s always a good idea to check with a financial advisor before using retirement accounts for asset depletion calculations.

Conclusion

Asset depletion is ideal for people who don’t have a regular income but have plenty of savings or assets.

Consult a financial advisor or mortgage specialist if this type of loan sounds good to you. They can help you decide if an asset depletion loan is good for you.

Reach out to a lender or mortgage expert at Equity Access Group today to get started!