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. Nonetheless, our Silver Lake Listing Agents say that 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).
In fact, the income stream can come from the borrower’s assets, but there are specific requirements when it comes to 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 ranges from lender to lender and some lenders do not utilize this method at all.
High Net Worth Borrowers Must Display Income
Don’t just think because you have substantial assets in the back that you’ll get approved that easily, However, 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.
Unfortunately, our Silver Lake Sellers Agents say that assets alone don’t qualify you for a mortgage unless those assets generate a drastic amount of 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.
Nonetheless, you still have to showcase that you have an income source with which to pay back the mortgage with today’s qualifying guidelines.
Develop Income From The Assets
Our Silver Lake Real Estate Agents say this is completely doable with high net worth individuals by creating an income stream from the assets that they have. Traditional loans have specific requirements that must be met to develop that income stream. The distribution from the retirement funds, for example, has to be received prior to being used in qualifying to establish a history of those distributions.
You also have to demonstrate that you have sufficient assets in the account to receive that distribution for at least the next three years. Most of the time, the lender is going to require a letter from the retirement plan administrator making sure that these are ongoing distributions.
Take Initial Distribution Before Starting The Loan Process
So, while these are not necessarily insuperable hurdles, you can’t overcome to qualify for a mortgage, our Silver Lake Listing Agents say that it is typically an exceptional thing to know about in advance so you can properly prepare and have that initial distribution made before you begin the loan application process.
Additionally, make sure you speak to your business manager or wealth planner and give them an understanding of the type of documentation you’re going to need from them.
It’s generally best to engage your loan officer to speak directly with your wealth manager or financial planner in advance. Furthermore, make sure that your asset accounts have sufficient funds to support the continuation of your distributions.