Comprehensive Guide to Asset Utilization Loans

Thinking of buying or refinancing a home without job income and have substantial liquid assets? Asset-based loans provide an innovative mortgage solution for high-net-worth individuals.

These loans open doors to homeownership or to refinance your mortgage without traditional income sources. In this guide I will provide answers to most of your questions and a viable solution.

calculated total liquid assets

What Are Asset Utilization Loans?

Asset Utilization Loans are a unique non-QM mortgage product designed specifically for individuals with significant liquid assets but limited or irregular income. This type of loan allows borrowers to qualify based on their liquid or semi-liquid assets, such as stocks, bonds, and retirement accounts rather than traditional income sources. It’s particularly beneficial for high-net-worth individuals, retirees, and self-employed professionals who prefer not to disrupt their investment portfolios by liquidating holdings.

How Do Asset Utilization Mortgage Loans Work?

Unlike traditional mortgages, asset-based mortgages evaluate your financial health by calculating a monthly income equivalent from your assets. Lenders use a formula that takes into account your total liquid assets and factors such as loan term and interest rate. This allows you to qualify for a mortgage using assets instead of providing pay stubs or tax returns.

– Eligible assets include cash, stocks, bonds, mutual funds, and retirement accounts.
– Ineligible assets are illiquid holdings like real estate or business account equity.
– Lenders typically apply a discount due to market volatility when calculating asset values.
    – If you’re over age 59 ½: Retirement accounts like IRAs or 401(k)s can often be included in full at 100% as these funds are accessible without penalties.
    – If you’re under age 59 ½: A percentage of your retirement accounts (70%) is typically counted reflecting potential early withdrawal penalties or restrictions.
    – Non-retirement investment accounts: Stock portfolios or mutual funds are valued from 65-100% of their value depending on the lender.
    – Bank accounts: checking, savings, money market, or CD accounts are valued at 100% of their balance.

Why Consider an Asset Utilization Loan?

These loans are ideal for retirees, business owners, or investors with substantial wealth in IRAs, 401(k)s, brokerage accounts, or trusts. They provide the opportunity to purchase or refinance a property without requiring a job or steady paycheck making them a lifeline for liquid asset rich borrowers.

 

Who Benefits Most from Asset-Based Home Loans?

This loan product is ideal for several groups: 1.) People with substantial savings or investments but irregular income streams. They can retain their investment growth by avoiding asset liquidation. 2.) retirees living off accumulated wealth who want a mortgage without income verification. 3.) self-employed professionals and entrepreneurs with fluctuating incomes who hold significant assets. Each in these groups will enjoy a streamlined approval process since there's limited paperwork.

Asset Based Loan Requirements

To qualify for this loan requires meeting specific criteria:

  • Credit Score: minimum FICO score of 660 although higher scores offer better interest rates.
  • Mortgage/Rent: You must not have any 30-day late housing payments in the last 24 months.
  • Liquid Assets: 3 months of account statements from your savings, CD, IRA, 401(k), investment brokerage accounts.
  • Liquid Assets: You'll need a minimum of $1 million total in all account(s) whether applying on your own or jointly
  • Down Payment: Typically 10%-20% depending on your credit score, property type & use, and account balances.
  • Property Use: Limited to primary residence or a second home/ vacation property. Not for investment properties.

 

I understand how challenging it can be to qualify for a mortgage when most of your wealth is tied to investments rather than a traditional paycheck. That’s where asset-based loans come into play. With these loans, my team evaluates your eligibility by calculating a qualifying monthly income based on your account balances.

How Is Income Calculated from Your Assets

Lenders use specific formulas to estimate your qualifying income depending on the program offered.
Below are three common methods we may offer:

Method #1 - Total Liquid Assets Divided by 7 Years

Formula: Total qualifying liquid assets ÷ 84 months (7 years) = Monthly Income.

mortgage originator shaking hand of wealthy borrower

Method #2   - 150% of Loan Amount + 5 Years of Other Debt Payments

Requirement: Your liquid assets must total at least 150% of the loan amount plus an additional 5 years’ worth of all other recurring monthly debt payments.

Method #3  -   5 Years of Mortgage Payments + All Debt Payments

Requirement: Liquid reserves must cover 5 years of the mortgage payment and all outstanding monthly debts in addition to funds required for closing.

* Additional Funds Are Needed

Wait! That's not all the funds you'll need. Let's not forget about your down payment, closings costs and required monthly mortgage payment reserves. See the down payment chart below for reserves.

IMPORTANT: If you've been taking RMDs or distributions for 2 years or more:

  1. You may qualify under a "traditional loan". See the "Differences" chart below
  2. You'll likely get a lower interest rate and better terms than the above methods

Down Payment Guide

Look at the loan amount you need below, then your credit scores, then your minimum down payment or equity needed to refinance, and the amount of cash reserves required.

Your Loan Amount Your Credit Scores Your Minimum Down Payment PITI Reserves
Under $2 Million
Purchase or Refinance
740
720
680
660
10%
10%
10-15%
25%
6 months
6 months
9 or 12 months
9 or 12 months
$2M to $3 Million
Purchase or Refinance
740
720
680
660
10%
10%
20%
30%
9 months
9 months
12 months
12 months
$3M to $4 Million
Purchase or Refinance
760
720
680
660
20-25%
25%
30%
N/A
12 months
12 months
18 months
N/A
$4M to $5 Million
Purchase or Refinance
760
740
680
660
25%
25-30%
35%
N/A
18 months
18 months
18 months
N/A

Interest Rates and Terms

Asset Utilization Loans typically carry higher interest rates than conforming loans due to their non-QM aspect. Rates are influenced by factors such as credit score, property type, and loan-to-value (LTV) ratio.

30 Year Fixed, 5 & 7 ARMS. Interest only option

Borrowers can choose between fixed rates for 30 years, a 30-year fixed with interest only for the first 10 years or a 5-7 Year Fixed ARM. Choosing the right option depends on your financial goals and how long you intend to stay.

Pro Tip from your Licensed Mortgage Originator, William:

"If you plan to sell your property within 5-7 years, consider an adjustable-rate loan to take advantage of potentially lower initial rates."

Why Work With an Expert in Asset-Based Lending?

As a licensed mortgage professional with years of experience in non-QM loan products, I specialize in helping clients like you navigate complex financial scenarios. Asset Utilization mortgage loans are ideal for high-net-worth borrowers with irregular income patterns. By partnering with a lender who understands this niche, you gain access to personalized solutions tailored to your financial goals. It goes without saying I will guide you through every step of the process ensuring you receive a competitive rate and terms.

By choosing us you have more options with our access to over 75 different wholesale lenders who offer non-QM loan programs.

Still have questions about this loan product?    Check these answers


Disclosure: Minimum loan amount is $200,000 for residential non-QM loans. Loan guidelines are subject to change per lender at any time until the loan is approved and the rate is locked. Borrowers must be approved by underwriting. Not all applicants will qualify.