High Assets, Low Income? No Problem
When discussing the process of qualification for home mortgages and refinancing, the focus is typically on credit scores, debt-ratio-income (DTI) and whether the borrower can afford the loan.
What about when someone doesn’t receive a W-2 and steady paycheck, but who can easily afford the mortgage courtesy of various liquid assets? Or perhaps they can afford to buy the home outright but wish to maintain a certain level of cash flow.
That’s where the non-traditional, Asset Qualifier program can provide a valuable solution for the homeowner or buyer with significant assets and high net worth.
How It Works
A few of the complex income scenarios that may benefit from an Asset Qualifier loan are self-employed business owners, retirees, trust income recipients, corporate buy-out recipients, and those living with wealth – but not collecting a paycheck. Those unable to obtain traditional financing can utilize their liquid assets for a home loan with the right lender. Proof of eligible assets will be required, and may include:
- Cash, in either/or checking and savings accounts.
- Retirement accounts such as 401(k), IRA, SEP and KEOGH. These assets are considered based on borrower’s age, retirement status, and potential penalties for accessing the funds.
- Investment accounts including mutual funds, stocks and bonds.
- Money market accounts
- Certificate of deposit (CDs)
Rather than documentation of a steady income from a paycheck, asset qualifying involves a calculation of the borrower’s various assets to establish a sufficient amount of funds to cover the loan and monthly mortgage expenses for a minimum of five years.
A simple example of a borrower’s determination of qualifying assets would be:
1/ Down payment and closing costs of $50,000 + loan amount of $250,000 + 5 years of mortgage payment that include property taxes and insurance + 6 months of PITIA* = $568,200 total assets required.
2/ Borrower has $100,000 liquid funds + $500,000 in mutual funds, stocks and/or bonds + $400,000 in an IRA + $100,000 vested in a 401k = $1,100,000 total assets available.
3/ Borrower has sufficient assets to qualify.
The qualifying assets will need to be sourced and seasoned for at least 12 months. The Asset Qualifier program is for primary residences only and can be used for purchase, rate and term refinance or cash-out refinancing. Loan amounts can go up to $3 million with a maximum LTV (loan-to-value ratio) of 75%; 70% for cash-out. A minimum FICO score of 700 is usually considered for this program. Those with credit events such as foreclosure or bankruptcy more than five years ago are eligible to apply.
We recognize that many highly qualified borrowers with proven credit and financial stability may still have difficulty qualifying under traditional guidelines. At Titan Mutual Lending Inc., we offer Asset Qualifier programs in order to assist in meeting ratio guidelines for borrowers with significant assets. Does this sound like you? Let’s sit down and see if we can help you achieve your non-traditional needs.
*Real estate term referring to principal, interest, property taxes, insurance and association dues