Asset-Based Mortgages: How They Work and Qualification Requirements

Do you live on investments, or do you claim so little taxable income on your tax returns that most lenders will reject your application for a mortgage? It is frustrating, we know. You know that you have more than enough cash on hand to qualify and afford your mortgage, but the bank doesn't seem to get it. Sound familiar?

First, you're not alone. This situation is more common than you think. 

Fortunately, here at Fidelity Funding Mortgage Corp, we serve borrowers just like you through our Asset Based Mortgage Programs. With this type of program, you are using liquid assets instead of adjusted income (instead of the traditional tax return approach) to qualify for your mortgage. It gives you the money you need to purchase the home without wasting your money paying all cash for a home, and it is a well-respected program borrowers enjoy. When it comes to Asset based lending, lenders can use the total amount of assets from LIQUID ACCOUNTS, including checking, savings, money market, stocks, bonds, IRA's, 401(k)s, etc.

What is an Asset-Based mortgage? 

When you live on assets, you are depleting those assets. Depleting your assets in a structed manner is not a bad thing. In fact, it's how a typical structured retirement plan works.  In other words, you are living from your assets, using them as annual income instead of getting paychecks from an employer or from a business you may own. It is using your liquid assets, money that you worked hard to earn, and worked hard to grow through jobs, investments, and enjoying your life! 

Simply put, an Asset-Based Mortgage (also known as an ABL mortgage loan or A.B.L. mortgage) allows the lender to create a cash flow or revenue stream out of your assets, by drawing on them throughout the term of your mortgage. 

"WITH AN ASSET-BASED LOAN, A LENDER DOES NOT REQUIRE YOU TO ESTABLISH A STRUCTURED WITHDRAWAL SCHEDULE OF YOUR LIQUID ASSETS IN ORDER TO QUALIFY FOR A MORTGAGE LOAN.  Instead, the lender simply applies a mathematical equation to your liquid assets for academic and compliance purposes. It's done this way to ensure that the lender is making a fair and responsible lending decision about your financial capacity to make the payments for the new loan."

It's how we qualify you for the mortgage even though you do not have a traditional income. Asset-based mortgage programs deplete your assets after the down payment, closing costs, and required reserves have been paid. In other words, it spreads your assets out over the life of your mortgage in order to qualify you for the loan. Because the lender is making the assumption that you are depleting your assets over time, its the reason why an asset-based mortgage is sometimes referred to as 'asset depletion'.  Additionally, an Asset based loan is sometimes known as an 'Annuitization loan', since the income is being reviewed in a manner similar to that of an annuity, but without any actual use of the assets. 

WITH AN ASSET-BASED LOAN, A LENDER DOES NOT REQUIRE YOU TO ESTABLISH A STRUCTURED WITHDRAWAL SCHEDULE OF YOUR LIQUID ASSETS IN ORDER TO QUALIFY FOR A MORTGAGE LOAN.  Instead, the lender simply applies a mathematical equation to your liquid assets for academic and compliance purposes. It's done this way to ensure that the lender is making a fair and responsible lending decision about your financial capacity to make the payments for the new loan.

YOUR LIQUID ASSETS ARE NOT BEING PLEDGED, HELD OR RESTRICTED IN ANY WAY. Like all mortgage home loans, the home is the collateral for the mortgage, not your liquid assets. They are simply being reviewed by the lender as a way to determine your ability to repay the new mortgage loan payments.

What counts as a Liquid Asset?

For the purpose of an Asset based mortgage, most US dollar accounts are eligible. Examples include:

• Savings accounts
• Money market accounts
• Certificate of deposit (CD)
• Stocks
• Bonds
• Retirement 401(k)
• Individual Retirement Accounts (IRA)

Generally speaking, eligible accounts should be personally held assets, not business assets. Business assets can be considered on a case-by-case basis. Asset accounts belonging to an entity such as a Trust or Estate can be used if the applicant is an authorized signor of the entity.

Unfortunately, Real Estate equity wealth and Cryptocurrency wealth portfolios are not eligible for an asset based depletion mortgage.

FOUR DIFFERENT ASSET BASED LENDING OPTIONS TO COVER SEVERAL DIFFERENT SCENARIOS 

At Fidelity Funding Mortgage Corp, we have FOUR ASSET BASED FINANCING OPTIONS that allow us to assist any kind of borrower in Florida that does not have a traditional income. Note: Even if we are using assets as income, we still require complete employment histories and tax returns from the last 2 years.

1. CONVENTIONAL HOME LOANS

Most people understand conventional lending -- in fact, when most people think of qualifying for a mortgage, they're thinking about a Conventional loan program.  But did you know? It is possible to use an asset-based income calculation approach for a Conventional loan program, and it's nothing new. With conventional loans, it's often referred to as "asset depletion".  With the Fannie Mae conventional lending model, you can borrow up to $647,200 at this time, as long as you prove that you have sufficient equity to qualify. The Conventional loan calculates your income by dividing your qualified asset portfolio (after down payment and closing costs have been removed) by 360 months.

PROS: 30 year fixed rate terms, no prepayment penalties, competitive interest rates

CONS: The lender is restricted to using a limited portion of your liquid asset portfolio, which often results in a income calculation figure that may be too low for the applicant to qualify, unless the applicant has extraordinary wealth. Applicants are also limited on the amount of money they can borrow, and must stay at or below the Conventional loan amount max that is reset each year by the Federal Housing Financing Administration. For 2022, that maximum loan size limit is currently $647,200. If you attempt to finance more than this amount, the financing ceases to be a Conventional loan, and becomes something called a Jumbo loan or Luxury Home Loan, where the qualification standards are even tougher for the average applicant. 

2) PRIVATE CLIENT PORTFOLIO WITH ASSET ​BASED INCOME

Our Private Client Portfolio program is our own custom lending program that offers well-qualified applicants access to a host of features and flexibility not found on Conventional or typical Jumbo financing. This program is our premium loan program, and offers significantly higher loan sizes, up to $20 Million Dollars, making it an excellent choice for luxury home buyers or for those looking to finance specialty homes, such as high-acreage homes, barndominiums, airplane hangarminiums, and luxury waterfront homes, luxury condominiums, condotels, etc. 

Perhaps the best feature of this program is our proprietary asset based / asset depletion calculation model, which offers one of the most generous income calculation assessment of assets o​​f many competitive programs, allowing for 33% - 50% more cash flow income from the sa​​me liquid assets, without the restrictions commonly found in conventional of jumbo home loan programs.

Keep your liquid assets where YOU want them.  We never require an applicant to move around their liquid assets to qualify for our loan or create a structured withdrawal , so you can rest assured that you'll be able to keep your favorite Certified Financial Planner, key investment banking, stock broker, and/or depository relationships in place. We are lender ONLY, and we are not a depository banking institution or wealth fund; so we are only interested in lending money--not interfering with your wealth portfolio. The way we see it, you have been successful at earning and growing your money over time, and we want you to be free to keep doing what you do best.  

Additionally, our program offers exceptionally competitive interest rates and we do not use the applicant's credit scores to determine the final interest rate. We perform our own evaluation of the applicant's total financial picture for qualification standards. You are more than a credit score, and we find that after working with individuals with substantial wealth, our approach is more realistic.

For a complete list of the benefits or this program, check out our PRIVATE CLIENT PORTFOLIO RESOURCE PAGE.

PROS: Generous Asset based Cash Flow / Asset depletion loans calculation model. Competitive interest rates. Less overall restrictions, close in the name of a trust or LLC, flexible on property types, credit scores not used in interest rate qualification, no prepayment penalties, and more.

CONS: Not designed for applicants with few liquid reserves, applicants with only real estate wealth or cryptocurrency wealth. Not always flexible with recent significant credit challenges or derogatory housing events such as a bankruptcy, foreclosure, short sale or deed-in-lieu of foreclosure. (may be acceptable on a case-by-case basis) 

3) FLEX HOME LOAN PROGRAM WITH ASSET​ BASED INCOME

Our Flex Home Loan Program gives lower-credit borrowers a second chance. This program also offers more flexible guidelines, allowing loan amounts up to $3 Million dollars, and spreads out the Asset depletion / Asset based cash flow across only 84 months. For instance, if you have total assets of $1 million (after you pay the down payment and closing costs), we would calculate a monthly income of $11,904, making qualifying for the mortgage loan a lot easier. We also accept first time homebuyers for large jumbo loan amounts.

PROS: Offers our most aggressive asset based lending / cash flow model. Extremely flexible underwriting guidelines. No prepayment penalties or early payoff fees (for primary residences and second homes). Very flexible with recent significant derogatory housing events such as a bankruptcy, foreclosure, short sale or deed-in-lieu of foreclosure.

CONS: Interest rates are higher than traditional home loans.

4) FLEX HOME LOAN PROGRAM WITH ASSET MATCHING​ QUALIFYING​ 

Our Asset Match Loan offers a different approach to asset based lending. With this program, instead calculating an asset based cash flow income stream from your liquid assets, we simply look for you to match the loan amount in liquid reserves after closing. For instance, if you have $500,000 of liquid assets left over after your down payment and closing costs have been paid, you may borrow up to $500,000. There is no math or formula to figure out -- it's simple.

PROS: Offers an asset matching cash flow model. Extremely flexible underwriting guidelines. No prepayment penalties or early payoff fees (for primary residences and second homes). Very flexible with recent significant derogatory housing events such as a bankruptcy, foreclosure, short sale or deed-in-lieu of foreclosure.

CONS: Interest rates and upfront fees tend to be higher than traditional home loans.

MINIMUM DOWN PAYMENTS FOR ASSET BASED HOME LOAN PROGRAMS

To qualify for mortgages using liquid assets, you need liquid assets--specifically, assets that are left over after you've bought the home. You'll need enough assets left over (after your down payment and closing costs have all been paid) so that there's enough there during the timeframe required for a mortgage program to qualify.

• Conventional loans -require a 3 percent down payment for first-time homebuyers, and 5 percent for later homebuyers. Conventional loan programs have the lowest down payment requirement of any loan program offering an asset based income calculation approach.
  

• Private Client Portfolio program requires a minimum down payment of 20%. For larger loan sizes, a down payment of 25% - 30% may be required, depending on the overall strength of the applicant.
• Flex Home Loan Program with Asset Depletion - minimum down payment is 10% and requires a 660 middle credit score or higher for the primary earner on the application. Minimum middle credit score is 620. Scores ranging from 620 - 659 may increase the down payment (consult your loan originator for details)
• Flex Home Loan Program with Asset Matching - minimum down payment is 10% and requires a 700 middle credit score or higher for the primary earner on the application. Minimum middle credit score for this program is 575. Scores ranging from 620 - 659 may increase the down payment (consult your loan originator for details)  

Asset-based mortgages come with pros and cons, like every mortgage. As with any mortgage investment, there are risks. If you default on the payments, you may lose the house. If the value of your assets decline more quickly than expected, this may put you in a tough financial position.

If you have a substantial amount of liquid wealth, you might be a good candidate for an Asset Based Mortgage. Instead of paying cash for a home, consider using this type of mortgage to help leverage your money better. 

An asset based loan allows your money to work for you, giving you the freedom and opportunity to continue letting your money compound and growing your gains, all while you continue to invest in your home.

At Fidelity Funding Mortgage Corp, our role is to help you choose the mortgage that is right for you.​​ 

This type of mortgage is not widely known, but as more Florida home buyers realize the financial potential, they'll find that their dream home may be closer than they thought. Our clients really enjoy the freedom that this type of loan process affords them, especially when trying to buy homes at higher price points, like luxury homes and jumbo sized homes.

Want to learn more about Asset Based Mortgage Loans, click here. 

We would be happy to help you learn more about this program and answer any questions you may have. If you are ready to take the first step and find out if you are eligible for a home loan based on your assets, contact us today!

Yours in successful homeownership,

Derek Bissen
Loan Originator
NMLS# 365627
Unconventional Lending Program Director

​About the Author: 

Derek Bissen is a licensed Mortgage Loan Originator with over 25 years of experience in the industry. Derek is a lending expert who is known for his ability to work with borrowers who have substantial wealth and non-traditional lending needs. He is a creative loan structurer and specializes in portfolio lending, asset-based lending, bank statement lending, as well as traditional loans such as Conventional, FHA, VA, and first-time homebuyers.

Derek's expertise in the mortgage industry is unparalleled. He is a trusted advisor to his clients, providing them with customized loan solutions that meet their unique financial goals and needs. His vast experience and knowledge make him a valuable asset to anyone looking to purchase a home or refinance their existing mortgage.

As a highly-experienced loan originator and author, Derek is committed to sharing his knowledge with others. He regularly provides valuable insights and advice to readers looking to navigate the complex world of mortgage lending. His articles are informative, engaging, and backed by years of hands-on experience.

With his wealth of knowledge and dedication to his clients, he is the go-to source for all your mortgage lending needs. If you're looking for a reliable and trustworthy mortgage expert, contact Derek today to learn more about how he can help you achieve your financial goals.