Have you heard of an asset utilization loan? Not many have. Most mortgages issued today fall into two distinct categories, conventional and government-backed. Conventional loans include those approved using guidelines set forth by Fannie Mae and Freddie Mac while government-backed loans include VA, FHA and USDA programs. An asset utilization loan is mortgage program that, for qualifying purposes, calculates a monthly amount for income based upon available liquid assets the borrower owns.
When a borrower owns considerable liquid assets but does not have a regular source of income, they can be turned down when mortgage lenders try to apply traditional mortgage guidelines. This frustrates borrowers who may have enough funds in the bank to buy the property with cash but because there is no verifiable, stable income, most loans won’t work. In this instance, an asset utilization loan can help.
Qualifying assets for the asset utilization home loan include things such as checking accounts, savings accounts, money market funds, stocks, mutual funds and even vested amounts in retirement funds. It takes a bit of calculation but for lenders with experience with this program it helps those who may be “asset rich” but don’t quite qualify based upon traditional income sources such as income from an employer or from a business the borrower owns. This program allows an underwriter to estimate an annual return on investments and use that amount to help qualify.
For example, a borrower has $300,000 in the bank along with two mutual funds. The lender considers this amount and applies an estimated return of say 4.00% per year, or $12,000. That works to $1,000 per month and is added to other monthly income the borrower has. With sufficient assets, the lender won’t need any third party income to qualify whatsoever.
Asset utilization loans are primarily reserved for those with good to excellent credit with a minimum credit score of 720 required. Loan amounts can be as high as $3 million if associated with scores higher than 720. Down payment requirements are typically 30% of the sales price but may be higher on more expensive properties. The assets must be verified as belonging to the borrower and the borrower has access to the accounts at will. If the accounts are jointly held with others, the borrower must receive written permission 100% of those funds can be withdrawn by the borrower, otherwise, the borrower’s assets available will be split up among all appearing on the account. If there are three account holders, the borrower can use only one-third of the amounts verified.
Again, this program fits a relatively small niche in the mortgage industry but for those that do fit the profile there really isn’t a better way to finance a purchase. Frustrated borrowers who couldn’t find a lender to make a “common sense” higher end home loan find the asset utilization loan is exactly what they needed. There are other guidelines that need to be reviewed and you can select from various loan programs so it’s best to speak with me for details.