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Asset Depletion Formula:
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Asset depletion is a method used by Fannie Mae to calculate qualifying income for mortgage applicants based on their liquid assets. This approach helps borrowers who may have substantial assets but lower regular income qualify for real estate loans.
The calculator uses the asset depletion formula:
Where:
Explanation: This formula calculates the monthly income that can be derived from an applicant's liquid assets after accounting for the down payment and required reserves.
Details: Asset depletion calculation is crucial for self-employed individuals, retirees, or those with significant assets but irregular income streams. It provides an alternative qualification method for mortgage applicants who don't meet traditional income requirements.
Tips: Enter all amounts in dollars. Assets should represent qualified liquid assets. Down payment and reserves should reflect the actual amounts required for the mortgage transaction. All values must be non-negative.
Q1: What types of assets qualify for asset depletion?
A: Typically, liquid assets such as cash, stocks, bonds, and retirement accounts. Real estate and business assets usually don't qualify.
Q2: How are reserves calculated?
A: Reserves typically include several months of mortgage payments (including taxes and insurance) that must remain in the account after closing.
Q3: Why is the divisor 360?
A: The divisor 360 represents 30 years of monthly payments (30 years × 12 months = 360), which is the standard timeframe used in this calculation.
Q4: Can asset depletion be combined with other income?
A: Yes, Fannie Mae allows lenders to combine asset depletion income with other qualifying income sources.
Q5: Are there minimum asset requirements?
A: Lenders typically require a minimum amount of qualifying assets, often significantly more than the down payment and reserve requirements.