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Asset Depletion Formula:
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The Asset Depletion Loan calculation is a method used by lenders to determine qualifying income for loan applicants who have significant assets but may not have traditional income sources. It calculates monthly income based on liquid assets minus required reserves.
The calculator uses the Asset Depletion formula:
Where:
Explanation: This formula calculates a monthly income stream by dividing the net available assets (after setting aside required reserves) over a 30-year period.
Details: This calculation is crucial for self-employed individuals, retirees, and investors who may not have traditional W-2 income but have substantial assets. It helps lenders evaluate loan eligibility based on asset liquidity rather than conventional income streams.
Tips: Enter total assets and required reserves in dollars. Both values must be non-negative numbers. The calculator will compute the monthly qualifying income based on standard lending practices.
Q1: What types of assets are typically included?
A: Liquid assets such as cash, savings accounts, investment accounts, and retirement accounts are typically considered. Real estate and illiquid assets are usually excluded.
Q2: How are reserves determined?
A: Reserves typically include required funds for mortgage payments, property taxes, insurance, and living expenses, usually calculated for 6-12 months.
Q3: Why divide by 360 months?
A: 360 months represents a standard 30-year period used by many lenders to calculate asset depletion income, though some lenders may use different timeframes.
Q4: Are there limitations to asset depletion loans?
A: Yes, lenders may have minimum asset requirements, and the calculation doesn't account for potential investment returns or asset depreciation.
Q5: Do all lenders use this exact formula?
A: While the basic principle is standard, specific calculation methods may vary between lenders. Some may use different reserve requirements or time periods.