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Asset Depletion Formula:
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The Asset Depletion Mortgage Formula calculates monthly income for mortgage qualification purposes by dividing net assets (total assets minus reserves) by 360 months (30 years). This method is used by lenders to determine borrowing capacity for individuals with significant assets but potentially irregular income.
The calculator uses the Asset Depletion formula:
Where:
Explanation: This formula spreads the net available assets over a 30-year period to determine what monthly mortgage payment the assets could support.
Details: Asset depletion calculations are crucial for self-employed individuals, retirees, and high-net-worth individuals who may not have traditional W-2 income but have substantial assets. This method helps lenders assess mortgage affordability based on asset liquidity rather than conventional income streams.
Tips: Enter total assets and required reserves in dollars. Assets should include liquid or easily convertible assets. Reserves typically represent the amount that must be maintained after closing costs and down payment.
Q1: What types of assets are typically included?
A: Liquid assets such as cash, stocks, bonds, mutual funds, and retirement accounts. Real estate and business assets may have different treatment.
Q2: How are reserves determined?
A: Reserves typically include closing costs, down payment, and several months of mortgage payments that must remain after the transaction.
Q3: Why 360 months instead of another timeframe?
A: 360 months represents a standard 30-year mortgage term, which is the maximum conventional mortgage duration.
Q4: Do all lenders use this exact formula?
A: While the basic concept is standard, some lenders may use slightly different calculations or additional factors in their underwriting process.
Q5: Can this method be combined with traditional income?
A: Yes, many lenders will consider both traditional income and asset depletion income when qualifying borrowers for mortgages.