For most borrowers, purchasing real estate for personal or business purposes relies on the ability to get a mortgage loan. Typical qualification criteria include identity verification, current obligations, and proof of income to service the loan. But for certain borrowers, especially business owners with an opportunity to write down their income to maximize tax credits, having a high net worth along with a modest income on paper isn’t enough to get approved when buying a home.
Where traditional options fall flat, an asset utilization mortgage is a possible solution. How does an asset utilization mortgage work, who does it benefit, and what does it look like for borrowers?
How an asset utilization home loan works
For home buyers who have built up their net worth over a number of years and have assets that can be made liquid, this type of mortgage could be right. Rather than depending on an income stream to ensure the borrower has the ability to repay the loan, the lender looks at their asset portfolio to secure the loan amount.
As an example, a business owner is looking to purchase a home for $1 million but only claims an income of $50,000 per year. Their assets are much higher including stocks, savings, a hefty 401k, and maybe even cryptocurrency. Their income alone would make them ineligible for the monthly mortgage payment, though their assets prove that they have the funds to service the loan. The lender uses an asset utilization ratio calculation to realize that they can, indeed, afford the payments, even if their paystubs don’t look like it.
Who can benefit
There are an increasing number of professions that may turn to asset utilization to qualify for a mortgage. Other types of borrowers can also make use of this product when FHA loans from big banks aren’t an option.
Retirees with savings in the bank and other assets that contribute to their net worth are one segment. Where pension plan income and other non-qualifying income streams leave them in the cold for traditional mortgages, an asset depletion/utilization loan could be right.
CEOs, seasonal workers, commission earners, and other professions with irregular income might look to use their assets to qualify. That’s the same for business owners who have much of their net worth in the company and its assets.
And for those who received their wealth through inheritance, it can help them qualify for a mortgage even with a smaller monthly income.
What does an asset utilization mortgage look like?
Terms are flexible for an asset utilization loan since it still needs to be affordable over the life of the loan. Fixed rate loans over 15 years and 30 years are the norm, although 10-year Interest Only periods are available from MBANC too.
This type of loan isn’t supported by “big bank” mortgage lenders, and you’ll often find the mortgage rates tend to be higher than traditional lending rates, even with excellent credit scores. However, it offers a niche service that can get eligible borrowers a loan when they would otherwise be unable, or qualify for higher home prices.
MBANC offers asset utilization mortgages
If you’ve run into problems qualifying with other lenders, MBANC may be right for you. With programs including asset utilization and other non-QM loans, we can help you finance the home you deserve. Contact us today for more information and to get preapproved.