Asset Depletion is a great option for divorcing clients who need to show additional information for mortgage qualifying purposes. (It’s funny how the term ‘Asset Depletion’ is exactly what the divorcing client is trying to avoid by obtaining a mortgage in the first place!)
Various investors have varying guidelines and requirements for asset depletion; however, typically assets may be used as income with the following guidelines.
- There can be no ‘double-dipping’ – meaning that the asset account being used as income cannot be used for down payment or reserve requirements. It can only be one or the other – asset or income.
- The account being used as income must not have a penalty for early withdrawal.
- Typically the account must be an investment type account and not a checking, savings, or money market account.
- The assets are not typically required to be pledged in any format. Post-closing, the borrower is allowed to use all the funds if they choose to. It sounds risky, but it is assumed that if a borrower has the ability to
establish an account with sufficient value, they are responsible enough not to wipe out their assets.
- There may be seasoning requirements on the asset account before it can be considered as qualifying income through asset depletion. Seasoning requirements will vary investor to investor. However, most
seasoning requirements will be overlooked in divorce situations as the asset is considered as ‘seasoned’ during the marriage.
- The total amount of assets in the account being used may be amortized over a period of 6 to 36 months – again depending on the investor.
Let’s look at the ability for John to purchase a new home after his divorce is final. Due to the fact that John has to pay Jane 50% of his gross income each month, he no longer qualifies for a new mortgage. However, John has an investment account with $500,000 in it. John may qualify for the new mortgage by amortizing the $500,000 over 36 months per investor guidelines – this gives Jim an additional $13,889 of month income for mortgage qualification purposes and does not typically require that John pledge these assets for security purposes either.
To better explore your options for obtaining a mortgage when going through a divorce, always work with a Certified Divorce Lending Professional (CDLP).
It is always important to work with an experience mortgage professional who specializes in working with divorcing clients. A Certified Divorce Lending Professional (CDLP) can help answer questions and provide excellent advice. To find a CDLP in your area, please click here.
This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only, and are subject to market changes. This is not a commitment to lend. Rates change daily - call for current quotations.