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Assets as Income

Did you know that assets can be used as qualifying income?

Income derived from the conversion of the borrower’s liquid assets into a monthly stream from assets that are not employment-related (“Other Financial Assets”) may be used to qualify the borrower in accordance with the requirements below - Fannie Mae - Conventional/Conforming Non-Employment Related Assets as Qualifying Income.

 

Eligibility Requirements

  • Maximum LTV/CLTV/HCLTV (%)  
    º Purchase / Limited Cash-Out Refi = 80%
    º Cash-Out Refi = 60%
  • Minimum FICO Score
    º LTVs less than 70% = 680
    º LTVs greater than 70% = 720
  • Occupancy Types
    º Eligible: 1-2 unit and Second Homes
    º Ineligible: Investment Properties and 3-4 Units

 

Assets Eligible as Other Financial Assets

  • Maximum LTV/CLTV/HCLTV (%)  
    º The same eligible liquid financial assets listed as eligible in the eligible assets topic of the FWL guidelines may be used; and
  • Funds from the sale of investment properties

Note: all other assets types are ineligible. For a list of examples see the Ineligible Assets topic in the FWL guidelines.

 

Monthly Income Stream Calculation – See Non-Employment Assets as qualifying income worksheet in the FWL guidelines, to calculate monthly income stream.

Asset Requirements

  • Eligible assets must be owned individually by the borrower, or the co-owner of the assets must be a coborrower of the mortgage loans.
  • Eligible assets used for the calculation of the monthly income stream must be liquid and available to the borrower with no penalty.
  • Eligible assets in the form of stock, bonds, mutual funds, or U.S. savings bonds: 70% of the value (remaining after costs for the transaction) must be used to determine the income stream.
  • Demand deposit accounts, savings accounts or certificates of deposit: 100% of the value may be used to determine the income stream.

 

“Net documented assets” are equal to:

  1. the sum of eligible documented Other Financial Assets minus any funds that will be used for closing or required reserves, and
  2. minus 30% of the remaining value of any stocks, bonds, mutual funds, or U.S. savings bonds assets (after the calculation in (1)).

 

Example: Calculation of Net Documented Assets

 Liquid Assets (Checking, Savings, etc.)  $40,000
 IRA (made up of stocks, bonds and mutual funds)  $500,000
 Minus funds required for closing (down payment, closing costs, reserves)  (-) $100,000
 (a) Subtotal Remaining IRA asset  (=) $440,000
 Minus 30% (as per guidelines noted above)  (-) $132,000
 (b) Net Documented Assets  (=) $308,000

 

 

 

 

 

 

 

Note: See also Fairway guides for:

  • Freddie Mac Assets as Qualifying Income (Non-Employment Related); and
  • Fannie Mae, Freddie Mac and Non-QM Jumbo program for Assets as Qualifying (Employment Related).