Asset Depletion
Asset depletion is an income qualification method that allows mortgage borrowers to convert verified liquid assets into a calculated monthly income stream for underwriting purposes. This approach is primarily used by borrowers with substantial assets but limited or no traditional employment income, such as retirees or high-net-worth individuals.
What This Means
How Asset Depletion Calculations Work
Under asset depletion methodology, a lender totals the borrower's eligible liquid assets, subtracts a percentage for estimated taxes and withdrawal costs if applicable, and divides the remaining balance by a specified number of months (typically the loan term, such as ). The resulting figure is treated as monthly qualifying income for DTI calculation purposes.
For example, a borrower with $1,800,000 in eligible assets on a 30-year loan term might qualify with $5,000 per month in asset-derived income ($1,800,000 / 360), depending on the specific program's calculation rules and any asset discounting applied.
Eligible Assets
Not all assets qualify for depletion calculations. Lenders generally accept:
- Checking and savings accounts (counted at )
- Investment and brokerage accounts (may be discounted to of market value)
- Retirement accounts (often discounted to to account for early withdrawal penalties and taxes)
Real estate equity, business assets, and personal property are generally excluded. The specific calculation methodology, discount percentages, and eligible asset types vary by lender and loan program.
Where Asset Depletion Is Available
Asset depletion is most commonly associated with non-QM lending programs, though Fannie Mae and Freddie Mac do permit asset-based income under specific conditions for conventional loans. Each program has its own rules regarding which assets qualify, how they are discounted, and how the depletion period is determined. Borrowers considering this approach should expect thorough documentation of all asset accounts, including sourcing and seasoning requirements.