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Asset Depletion Formula:
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Asset depletion is a mortgage qualification method that calculates potential monthly income based on a borrower's liquid assets. It's often used for self-employed individuals or those with significant assets but irregular income.
The calculator uses the asset depletion formula:
Where:
Explanation: This formula estimates the monthly income that could be generated from liquid assets after setting aside required reserves.
Details: Asset depletion calculations are crucial for mortgage qualification when traditional income documentation is insufficient. They help lenders assess borrowing capacity for asset-rich but income-poor applicants.
Tips: Enter total assets and required reserves in dollars. Assets should be greater than or equal to reserves. The result shows the calculated monthly income for mortgage qualification purposes.
Q1: What types of assets are considered in this calculation?
A: Typically includes liquid assets like cash, stocks, bonds, and retirement accounts. Real estate and business assets are usually excluded.
Q2: How are reserves determined?
A: Reserves typically include required down payment, closing costs, and several months of mortgage payments and living expenses.
Q3: Why is 360 used as the divisor?
A: 360 represents 30 years of monthly payments (30 years × 12 months), which is a standard mortgage term for qualification purposes.
Q4: Do all lenders accept asset depletion income?
A: Not all lenders use this method. It's more common with portfolio lenders and for non-QM loans. Requirements vary by lender.
Q5: Are there limitations to asset depletion calculations?
A: Yes, this method doesn't account for taxes on asset liquidation, investment returns, or changing asset values over time.