Scott Storace - Branch Manager, 100 Pacifica Drive Ste. 140, Irvine CA 92618 NMLS #226339 949.973.0141

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Asset Annuitization For Home Loans

Income Stream: Convert Assets to Income to Qualify for a Home Loan

Income Stream: Convert Assets to Income to Qualify for a Home Loan

Orange County, CA – Purchasing property comes with its fair share of complications since all borrowers need to fulfill a number of criteria before they’re even considered for a loan.  When you’re going for a mortgage, it’s important to put your best foot forward and represent your financial situation in the best light possible.  In some cases, it may be necessary to convert assets to qualifying income in order to fulfill the stipulations of a loan. This process is known as asset annuitization.

In order to receive a home loan, all lenders require detailed access to income records and history.  The ability of a person to pay back a loan is of fundamental importance to any lender. Debt-to-income ratios are one of the major ways that lenders assess risk.  However, there are many situations where assets can be used as qualifying income. By converting the value of assets into a regular income stream borrowers can reduce their debt-to-income ratios.  Asset annuitization allows lenders to offer loans to people with appropriate assets regardless of their employment situation.

In order for assets to qualify as income for the purpose of a home loan, they must be either owned individually by the borrower or co-owned with the co-borrower of the mortgage loan.  It’s also important that all assets are liquid and available to the borrower without penalty.  For example, if retirement accounts and related lump sum packages are to be used, they must be accessible to the borrower and accompanied by a distribution letter.

In some cases, the assets used may be in the form of stocks, bonds, or mutual funds.  In this situation, 70 percent of the asset value can be used to represent an income stream.  It’s important that borrowers are able to withdraw the funds without a penalty if this class of assets is used.  Not all assets are eligible for asset annuitization however. Some examples of non-employment related assets include stock options, non-vested restricted stocks, lawsuits, lottery winnings, real estate sales, inheritance, and divorce proceedings.

In order to decide if a person is eligible for a loan, lenders will calculate the net documented assets.  This is the sum of all eligible assets minus any funds for closing, required reserves and the 30 percent discount for stocks, bonds, and mutual funds.  It is important to note that the total asset amount is not used by lenders to make their final decision, but the amount of net documented assets.  An income stream is then calculated by dividing net documented assets by 360 months, with a 30 year term required regardless of age or amortizing term.

While getting accepted for a mortgage is never an easy process, asset annuitization can make home loans more accessible to a wider range of people.  The older segment of the population more readily qualify for home loans using asset annuitization, based on the years they have had to accumulate wealth.  However, anyone with the required assets can use asset annuitization to help them find a new home regardless of their employment and income situation.

Contact me if your regular income is not great enough to support a new mortgage payment. We will look at your asset picture and see if asset annuitization will make the difference.

Scott Storace

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