For individuals who hold significant assets but lack a stable monthly income, it may be challenging to get an approval for a Conventional Home Loan. Asset-Rich, Cash Flow Poor mortgage options, like the Asset-Only Loan program, offer unique solutions for those with substantial liquid or easily liquidated assets. Here’s a closer look at how these programs work and how they can empower individuals with non-traditional financial profiles to achieve their homeownership or refinancing goals.
What is an Asset-Only Mortgage?
An asset-only mortgage is designed specifically for borrowers who have significant assets such as investment portfolios, savings, or other financial holdings but do not have a steady income. This is common for retirees, investors, self-employed business owners, and others whose financial strength lies in their assets rather than monthly cash flow. The Asset-Only Loan program, for example, evaluates a borrower’s assets rather than requiring proof of income, making it possible to qualify for a mortgage based on their asset value alone.
Key Features of the Asset-Only Loan Program
- Flexible Financing Options
Borrowers can finance up to 90% of a home's value for purchases or up to 80% for cash-out or rate-and-term refinances. This flexibility allows borrowers to access substantial loan amounts without needing to prove a monthly income. - Ability to Repay Requirement
Although traditional income verification is not required, lenders must still confirm that borrowers have the “ability to repay.” This is typically assessed by examining the liquidity of assets and ensuring there are sufficient funds to cover loan obligations. This requirement helps lenders ensure that borrowers can sustainably manage the mortgage. - Liquidity Requirements
To qualify, assets must be liquid or capable of being liquidated without restrictions within 30 days. This includes checking, savings, money market accounts, and certain types of investments. Non-liquid assets, such as real estate, are not eligible unless they are converted to cash, such as a same day sale of a currently owned property. Gift funds from non-occupants are not eligible to be used and Crypto Currency is not an eligible liquid asset for asset utilization/depletion due to its volatility. - Income Calculation Adjustments
When determining loan eligibility, available assets are reduced by any early withdrawal penalties, down payments, closing costs, and required reserves. This adjusted amount is used to calculate the borrower's capacity to support the loan. First-time Homebuyers and loans with loan-to-value (LTV) under 85% require 6-months liquid reserves to cover the new loans Principal, Interest, Taxes, Insurance, and Association dues (PITIA). If the loan-to-value is over 85% the required reserves increases to 12-months PITIA. For loan amounts over $1.5 million borrwores will need 9-months PITIA and loan that exceed $2.5 million will require 12-months of PITIA. - Higher Interest Rates
Asset-Only loans often come with slightly higher interest rates than traditional mortgages. This rate adjustment accounts for the added complexity and unique underwriting requirements of the program. - Potential for Asset Depletion
It’s important to remember that if assets are used to make monthly payments, they may decrease over time, which can affect long-term financial stability. Borrowers should carefully evaluate their assets and financial plan to ensure they can support the mortgage for its entire term.
Benefits of the Asset-Only Loan Program
The Asset-Only Loan program can be a strategic option for asset-rich, cash-poor individuals, as it allows them to leverage their wealth to secure a mortgage. This can be especially valuable for:
- Retirees who have substantial retirement savings but no regular paycheck.
- Business owners who may reinvest profits rather than drawing a traditional salary.
- Real estate investors who prefer to qualify based on asset holdings rather than rental income.
- High net-worth individuals with portfolios but limited liquid cash flow.
Documentation and Eligibility for Asset-Only Loans
Qualifying for an asset-only loan requires clear documentation of assets. This may include:
- 100% of Checking, Savings, Money Market Accounts and U.S. Treasuries withmaturity less than 1 year.
- 100% of cash surrender value of life insurance less any loans.
- 70% of Stocks, Bonds, and Mutual Funds.
- 70% of Retirement Assets: Eligible if the borrower is of retirement age. (at least 59 ½)
- 60% of Retirement Assets: Eligible if the borrower is not of retirement age. (60% takes into account a 10% early withdrawal penalty)
Lenders might request additional documentation to ensure compliance with lending guidelines and to establish the borrower’s financial profile accurately.
Is an Asset-Only Loan Right for You?
The Asset-Only Loan program provides a solution for asset-rich individuals looking to finance a home purchase or refinance without income documentation. However, it’s essential to consider the potential risks, such as asset depletion and higher interest rates. Before proceeding, consult a mortgage professional to evaluate your assets, assess your goals, and determine if this specialized loan aligns with your financial strategy.
For asset-rich, cash-poor borrowers, the right mortgage can transform your financial landscape. With careful planning, an asset-only loan may be the bridge to achieving your real estate goals without compromising your unique financial situation. Reach out to Grant Menard at Onshore Mortgage to learn more about your options and take the first step toward leveraging your assets for your dream home.
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