Dave Porter

Assets as Income?

Can assets be used as income? As with most lending guidelines the answer is yes and no.

It depends on the loan-to-value, loan type, and age of the borrower. For example, say you are 62, are putting 20% down, and have some income (maybe a job, Social Security or a pension) but not enough to qualify for a home loan.

Lenders can look at the balance in an IRA and depending upon the loan program can take that amount and divide by 36. If the lender can prove 36 months of income then they can use it as asset depletion income.

In this scenario, Kim is 65 and has $2300 in Social Security income and has $121,000 in an IRA and an additional savings account for the down payment and closing costs.

She has no debt. Lenders will take her/his/their income and take about 43% of it to determine what they call is the debt-to-income ratio.

$2300 x 43% = 989/mo is the amount for which Kim qualifies. Now we need to take from that real estate taxes and insurance, say $300 per month in taxes and $70 per month in fire/hazard insurance. This leaves $619 a month for the principal & interest payment. Now Kim can obtain a home loan at today’s going rates of about $142,000. In this example I used a 3.25% rate with an APR of 3.367%.

But the home she wants is $300,000 so now she puts 20% down and we have a new loan amount of $240,000, but she needs more income since she qualifies for only $142,000 currently.

Kim talks to a favorite mortgage lender with the initials of DP. He suggests Kim begins to get an automatic distribution from the IRA of $1000 per month. Proof of this automatic distribution would need to occur before the fist payment is due on the new home loan.

The $1000 plus the $2300 in Social Security provides enough income for Kim to qualify for the $240,000 loan. This does not use up the maximum of her borrowing power using the asset depletion income but for our example, it’s enough to help her buy the home wanted.

This circumstance may not be right for every borrower. No legal or tax advice is provided nor intended.

This information is not intended to be an indication of loan qualification, loan approval or commitment to lend. Loans are subject to credit and property approval. Other limitations apply. Rates, terms and availability of programs are subject to change without notice. State disclaimer: loanDepot.com, LLC  NMLS ID 174457. www.nmlsconsumeraccess.org Licensed by the OR Division of Finance and Corporate Securities, Mortgage Lending  ML-4972.| WA: Licensed by the WA State Department of Financial Institutions, Consumer Loan Company CL-174457. | ID | CA: Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act CRMLA 4131040.

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