Home
Back
Asset Depletion Formula:
| From: | To: |
Asset depletion is a method used by lenders to calculate qualifying income for loan applicants who have significant assets but may not have traditional income sources. It determines monthly income by dividing liquid assets by a specific period.
The calculator uses the asset depletion formula:
Where:
Explanation: This formula calculates the monthly income that can be derived from liquid assets after setting aside required reserves, spread over a 30-year period.
Details: Asset depletion calculation is crucial for self-employed individuals, retirees, and investors who may not have traditional W-2 income but possess substantial assets. It helps lenders assess borrowing capacity based on asset liquidity.
Tips: Enter total assets and required reserves in dollars. Both values must be positive numbers, and assets should be greater than or equal to reserves for a valid calculation.
Q1: What types of assets are considered in this calculation?
A: Typically includes liquid assets such as cash, stocks, bonds, mutual funds, and retirement accounts. Real estate and business assets are usually excluded unless they are liquid.
Q2: Why is 360 used as the divisor?
A: 360 represents 30 years converted to months (30 years × 12 months = 360 months), which is a standard timeframe used by lenders for asset depletion calculations.
Q3: How are reserves determined?
A: Reserves typically include required cash reserves for mortgage payments, taxes, insurance, and living expenses, usually covering 6-12 months of obligations.
Q4: Can this calculation be used for all loan types?
A: Primarily used for mortgage loans, particularly for self-employed borrowers, retirees, or those with significant investment income rather than traditional employment income.
Q5: Are there variations in how lenders calculate asset depletion?
A: Yes, some lenders may use different divisors (e.g., 240 for 20 years) or have specific requirements for which assets qualify and how reserves are calculated.