An asset depletion loan uses your liquid assets to create qualifying income for a mortgage. Instead of relying on wages or self-employment income, the lender divides your asset balance by the loan term to determine monthly income.
For example, if you have $500,000 in qualifying assets and a 30-year loan term, the calculation is $500,000 divided by 360 months, giving you $1,389 of monthly income. This qualifies you for a mortgage payment that fits within standard DTI guidelines.
This loan type is designed for borrowers with significant savings, investments, or retirement accounts but limited regular income.
How the Calculation Works
The lender totals your eligible liquid assets, then divides by the loan term in months (typically 360 for a 30-year loan). Some lenders apply a discount of 30% to account for market fluctuations and taxes. Example: $500,000 assets x 70% usable = $350,000. $350,000 / 360 = $972 per month in qualifying income.
Requirements for Asset Depletion Loans
Minimum assets typically start at $200,000 to $300,000 after discounting. Credit score requirements are usually 660 to 700. Down payment of 10% to 20% is typical. Assets must be verifiable and liquid: cash, stocks, bonds, mutual funds, and retirement accounts.
Qualifying Asset Types
Eligible assets include checking and savings accounts, certificates of deposit, stocks and bonds, mutual funds, and vested portions of retirement accounts like 401(k)s and IRAs. Real estate equity and business assets generally do not qualify.
Rates and Terms
Asset depletion loans typically have rates 0.5% to 1.5% higher than conventional loans. Loan terms are usually 15 or 30 years fixed. Some lenders offer adjustable-rate options. The specific rate depends on your credit score, loan-to-value ratio, and total asset position.
Pros and Cons
Pros: no earned income required, ideal for retirees and early retirees, uses assets you already have, predictable calculation. Cons: higher rates, significant assets required, not all lenders offer them, asset values fluctuate.
When Asset Depletion Makes Sense
This loan works well for retirees with investment portfolios but limited pension or Social Security income, early retirees who have assets but have not yet started drawing on them, and individuals with large cash positions from a business sale or inheritance who do not have regular W-2 income.