Residential Magazine

Net Worth Can Matter More Than a Pay Stub

Asset utilization loans may fit borrowers with limited W-2 income

By Max Slyusarchuk

Self-employed individuals, as well as retirees or people who rely on investment income, often face difficulties in obtaining a conventional mortgage. This is due to their inability to provide verifiable W-2 income typically required by most lenders. But there are ways for these people to finance the home of their dreams.

Individuals facing such circumstances often seek assistance from lenders that offer nonqualified (non-QM) mortgages, which are loans that cannot be purchased by the federal government or the government-sponsored enterprises. One of these non-QM products is an option known as an asset utilization loan. Instead of relying on traditional W-2 income, borrowers can apply for this loan by demonstrating that they possess adequate assets to support the mortgage payments.

Assets that commonly meet the qualification criteria for this type of loan include checking and savings accounts, stocks and bonds, mutual and money market funds, income from real estate investments and vested amounts in retirement funds. Annuities qualify, as do some pensions.

For borrowers who possess substantial qualifying assets, asset utilization loans can be considered an excellent financing option for purchasing a home. Mortgage originators should understand this avenue of financing to best serve their clients.

Overall portfolio

Unlike a traditional mortgage that primarily considers W-2 income and the value of the real property, an asset utilization loan considers the borrower’s overall asset portfolio. It is particularly beneficial for individuals or businesses with significant assets but limited income or cash flow.

By leveraging their assets, borrowers may qualify for larger loan amounts, enjoy more favorable interest rates, or access financing that they might not otherwise be eligible for based solely on their income or creditworthiness. The lender assesses the value and liquidity of the assets when determining the loan terms.

To qualify for an asset utilization loan, borrowers must meet specific criteria and provide supporting documentation to demonstrate eligibility. Here are important factors that lenders typically consider.

  • Sufficient assets. Borrowers need a significant amount of assets (including investments, stocks, bonds, savings accounts, retirement funds or other real estate) to prove their capacity to repay the loan.
  • Asset verification. Documentation is required to verify the existence and value of assets. This involves providing bank statements, investment account statements, property appraisals or other relevant records.
  • Asset seasoning. Some lenders may require assets to have a minimum seasoning period, indicating stability and reliability. Generally, this means owning the assets for several months or years.
  • Loan-to-value ratio. Lenders compare the loan amount to the appraised value of the property to be purchased. The maximum loan-to-value ratio set by a lender may necessitate a certain level of equity in the property or a larger downpayment.
  • Creditworthiness. While asset utilization loans focus more on assets than traditional income, creditworthiness remains crucial. Lenders assess credit scores, credit history and overall financial stability to evaluate repayment ability.
  • Debt-to-income (DTI) ratio. Although assets are considered as income, lenders may still assess the DTI ratio, which compares monthly debt obligations to income. A DTI ratio of 43% or lower is often used as a guideline for mortgage qualification.
  • Documentation of income and assets. Comprehensive documentation of income and assets — such as tax returns, W-2 forms, 1099 forms, bank statements and other relevant records — is required to verify financial standing.

Qualification requirements

Asset utilization loans are primarily intended for those with good to excellent credit. Although requirements vary from lender to lender, a minimum credit score of 720 is generally needed.

Asset utilization loans can be offered in amounts as high as $3 million, particularly for borrowers with high credit scores. The typical downpayment requirement is 30% of the property’s purchase price, although this percentage may increase for more expensive properties.

Moreover, it is essential that all assets are verified as belonging solely to the borrower, who must have unrestricted access to these accounts. A government pension, for instance, generally cannot be withdrawn and is ineligible as an asset for these loans.

If the accounts are jointly held with other individuals, written permission is required to confirm that 100% of the funds can be utilized by the borrower. Otherwise, the borrower’s available assets will be divided proportionally among all account holders.

Common considerations

There are some pros and cons that should be considered when advising borrowers about these loans. For some clients, an asset utilization loan will allow them to borrow more money than they could have qualified for with a traditional mortgage. This is because some lenders are willing to offer higher loan amounts to borrowers who have an abundance of assets, even if they have lower incomes.

In some cases, borrowers may also be able to get a lower interest rate on an asset utilization loan. This is because, in certain cases, the lender may be assuming less risk by working with a borrower who possesses an extensive investment portfolio.

One of the drawbacks of this type of loan is that the lender may require a borrower to make a larger downpayment compared to a traditional mortgage. The reason for this is due to a lender’s desire to make sure that borrowers have some skin in the game.

To qualify for an asset utilization mortgage, borrowers may need to provide more documentation to the lender than they would with a traditional mortgage. There is inherent risk with any loan, and asset utilization loans require borrowers to pledge their assets as collateral. In the event of default, there is a risk that the borrower could lose the assets or have to sell them at a loss to repay the loan.

Viable solution

Asset utilization loans offer a viable solution for individuals who face challenges obtaining a traditional mortgage due to nonverifiable W-2 income or reliance on investment income. By leveraging their substantial assets, borrowers can potentially qualify for larger loan amounts and benefit from favorable interest rates.

It’s important to carefully consider the requirements and potential drawbacks associated with asset utilization loans. Thorough research of lenders that specialize in asset utilization loans (including a comparison of their terms, rates and fees) is crucial to finding the right fit.

Mortgage professionals can provide valuable support and guidance throughout the qualification process. Ultimately, making an informed decision based on a thorough evaluation of the benefits and drawbacks of asset utilization loans will help borrowers navigate the mortgage financing landscape with confidence. ●


  • Max Slyusarchuk

    Max Slyusarchuk is co-founder of Imperial Fund and a founder and CEO of A&D Mortgage. He is also a shareholder and vice chairman of the board of Home Federal Bank of Hollywood. Slyusarchuk is responsible for the day-to-day activities, strategic planning, business development and building relationships with key partners. He has experience in both private equity investments and portfolio management for institutional and private sector clients in Eastern Europe and the U.S. Reach Slyusarchuk at (305) 760-7000.

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