How to get a mortgage with your assets, even with no income and/or retired.
Are you retired and trying to refinance or buy a new house?
Or maybe you are NOT retired, but have assets to cover a home purchase, but currently have no income?
What you are looking for is called an Asset Depletion Mortgage or an Asset Based Mortgage
I know from personal experience, that this can be a real pain to find a lender who has this type of mortgage.
Mortgage Brokers don’t often know about Asset Depletion or Asset Based Mortgages
With interest rates so low last summer, we wanted to refinance. There was just one big problem. We did not have any W2 income.
I had engineering my exit and became Accidentally Retired and though we have substantial assets, and could pay our entire current mortgage off if we wanted, we could not find an easy way to refinance.
After making several phone calls and having discussions with our current lender and our bank, I was getting nowhere without current income via the traditional lending route.
So I contacted my financial advisor (who has since been fired), who referred me to his recommended mortgage broker. I spoke with the broker and explained my situation. The call went something like this:
“Hi, I am looking at refinancing, but I do not have any current W2 income. We have enough cash that we can pay down our mortgage and are sitting on a lot of assets. Do you have any ideas of what we can do?”
He responded “There’s not much we can do in that situation, but let me check around and see who you could contact.”
He ended up referring me to a Private Bank.
Private Banks will lend via an Asset Based Mortgage, but at a cost.
One way to secure an Asset Based Mortgage, will be to work with a Private Bank. There is a big cost though.
You will need to likely move a large amount of money into that bank.
I spoke with several banks, one of them required a $700K minimum relationship. This could include your mortgage, so if you have a Jumbo Mortgage, this could be a perfect option for you, but we did not need a Jumbo mortgage, so this ended up being a no-go.
The second type of Private Bank, is one that will want to manage your investments. This type of relationship started off in the $2-3M range and required moving all of your assets to them to act as your Financial Advisor and Fiduciary.
I looked closely at those options and had numerous discussions with the bankers, but in the end we did not want to move our money anywhere, but to our own self-directed management, and we did not need a Jumbo Mortgage, so we continued looking.
Contact multiple Mortgage Brokers, to find one who works with an Asset Depletion Mortgage lender
Bankrate ended up working out better. They give you the option to connect you to mortgage brokers or other lenders (if you want to), and so I figured I would go ahead and see a competitive offer and try to talk to someone.
My hunch paid off, and I was contacted almost immediately by a mortgage broker who quickly listened to my request and said “you need an Asset Depletion Mortgage – I happen to have done one before, and I know who has them.”
This led us to a quick and speedy refinance.
We were able to apply and and close on the mortgage in 3 weeks. I have to give the credit to this particular Mortgage Broker, who not only knew about the type of mortgage we were looking for, but who also worked quickly as our advocate to get the deal closed.
Portfolio Lenders will also have Asset Depletion Mortgages
I continued to try to find out more about this type of mortgage and who does them, so I called around to all of the local credit unions.
After calling 10 credit unions, I became familiar with the term Portfolio Lender.
A portfolio lender is a bank or lending institution that originates mortgages and holds them in its own portfolio instead of selling them to the secondary market.Bankrate.com
Once I realized portfolio lender was the type of lender I was looking for, it was much faster to find the right type of lender who will be willing to lend to me in the future.
In fact, if you are looking to purchase an investment property with assets, a portfolio lender will be your best friend.
But they will lend on their own terms (especially when calculating income based off of your assets). Sometimes these terms can be more flexible, and other times not, so I recommend calling around.
Make at least 10 calls, minimum.
Ok, so how much assets do you need for an Asset Based Mortgage?
It turns out that it completely depends. Freddie Mac and Fannie Mae, have different requirements, as do many of the lenders. It is the wild west out there. But for your reference, here are the Freddie Mac requirements for an Asset Based Mortgage, and the Fannie Mae requirements.
The key highlights are as follows:
- This is a mortgage on your Primary Residence or a second home
- You must have at least 20% in equity in the property
- You must be able to withdraw the assets in their entirety for it to be considered an “Eligible Asset”.
- If you are under retirement age, you will NOT be able to use your 401 k), IRAs, etc.
To do the calculation of what you can afford with your assets;
- You cannot include any funds that will go towards the purchase of the house or refinance in your calculation
- Investment Accounts are sometimes discounted by lenders 70% to allow for fluctuations, bear markets, etc. (but not always – via Freddie Mac or Fannie Mae guidelines not necessary).
- Your “Net Assets” are then divided by by 240 or 360 (lender dependent) ~ The result is your monthly income that will be used towards your Debt to Income Ratio.
That is a lot, so let’s run through a scenario…
Mr. & Mrs. Example Scenario Income Based off Assets Calculation:
- $100,000 in the bank ~ $100,000 eligible
- $1,500,000 in Taxable Investment Assets (not 401 (K), IRA, ETc.) ~ $1,500,000 * 70% = $1,050,000 eligible
- $1,150,000 Total Eligible Assets
- Monthly Income = $1,150,000/ 360 = $3,194.44
So, as you can see Mr. & Mrs. Example have $3,194.44 in monthly income that a typical lender will loan based off of.
Standard DTI is 43%, so with a monthly income of $3,194.44 a typical lender will allow you to have a total of $1,373.61 of debt per month. This will include HOA fees, taxes, and any additional escrow obligations.
So all told, Mr. & Mrs. Example are likely looking at the ability to obtain a mortgage of up to $1,200 a month.
But the asset based income calculation varies from lender to lender, so call around.
Current Lenders who will do an Asset Based Mortgage or Asset Depletion Mortgage
These are the lenders that I personally discovered do these types of loans via my refinance and investment mortgage pursuit. I am sure there are plenty more: