Silver Lake Real Estate Agents say high net worth borrowers who buy a home and finance it with a mortgage may think their assets are sufficient to qualify for the loan. However, most lenders require that they show an income stream using tax returns to qualify for the mortgage under today’s more stringent “Ability to Repay” guidelines (ATR)
Silver Lake Real Estate Agents say the income stream can in fact come from the borrower’s assets, but there are specific stipulations regarding the income stream. Some lenders do offer an “asset utilization or asset depletion” method to provide a hypothetical income stream using their “post-closing” assets. This method varies from lender to lender and some lenders do not utilize this method at all.
High Net Worth Borrowers Must Show Income
A retired high net worth client of ours had a good amount of assets in the bank and believed the loan process would be seamless. What you need to realize is that even if you have a lot of assets in the bank or in an investment account, lenders will look separately at your assets versus the income on your tax returns.
Silver Lake Real Estate Agents say assets alone don’t qualify you for a mortgage unless those assets generate a drastic taxable income or the borrower has a large investment portfolio and applies for a home loan with a lender who utilizes the asset depletion method of qualifying. You still have to demonstrate that you have an income source with which to pay back the mortgage with today’s qualifying guidelines.
Create Income From The Assets
A majority of Silver Lake Real Estate Agents will tell you this is most likely doable with a high net worth individuals by creating an income stream from the assets that they have. Traditional loans have certain requirements that must be met to create that income stream. The distribution from the retirement funds, for example, has to be previously received to be used in qualifying to establish a history of those distributions.
You also have to display that you have a stable amount of assets in the account to receive that distribution for at least the next three years. Silver Lake Real Estate Agents say most of the time, the lender is going to require a letter from the retirement plan administrator demonstrating that these are ongoing distributions.
Take Initial Distribution Prior To Starting The Loan Process
While these are not necessary insurmountable hurdles you can’t overcome to qualify for a mortgage, Silver Lake Real Estate Agents say it’s a great thing to know about in advance so you can properly prepare and have that upfront distribution made before you start the loan application process.
Additionally, make sure to speak to your business manager or wealth planner and give them a clear understanding of the type of documentation you’re going to need from them.
Silver Lake Real Estate Agents say it’s best to encourage your loan officer to speak directly with your wealth manger or financial planner in advance. Make sure that your asset accounts have sufficient funds to support the continuation of your distributions. Make sense?