As long as the investors don't have any overlays we can use employment related assets as income. Below is the FNMA guideline & example of calculation.
Employment-Related Assets as Qualifying Income
The following table provides the requirements for employment-related assets that may be used as qualifying income.
| ✓ | Asset Requirements | |
|---|---|---|
| Assets used for the calculation of the monthly income stream must be owned individually by the borrower, or the co-owner of the assets must be a co-borrower of the mortgage loan. The documentation must be in compliance with the Allowable Age of Credit Documents policy (see B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns (02/27/2018), for additional information). | ||
Assets must be liquid and available to the borrower and must be sourced as one of the following:
| ||
| If a penalty would apply to a distribution of funds from the account made at the time of calculation, then the amount of such penalty applicable to a complete distribution from the account (after costs for the transaction) must be subtracted to determine the income stream from these assets. | ||
| If the employment–related assets are in the form of stocks, bonds, and mutual funds, 70% of the value (remaining after costs for the transaction and consideration of any penalty) must be used to determine the income stream to account for the volatile nature of these assets. | ||
| A borrower shall only be considered to have unrestricted access to a 401(k) or IRA, SEP, Keogh retirement account if the borrower has, as of the time of calculation, the unqualified and unlimited right to request a distribution of all funds in the account (regardless of any possible tax withholding or applicable penalty applied to such distribution). | ||
“Net documented assets” are equal to the sum of eligible assets minus: (a) the amount of the penalty that would apply if the account was completely distributed at the time of calculation; (b) the amount of funds used for down payment, closing costs, and required reserves; (c) 30% of the remaining value of any stocks, bonds, or mutual funds assets (after the calculation in (b)). | ||
| Ineligible assets are non-employment-related assets (for example, stock options, non-vested restricted stock, lawsuits, lottery winnings, sale of real estate, inheritance, and divorce proceeds). Checking and savings accounts are generally not eligible as employment-related assets, unless the source of the balance in a checking or savings account was from an eligible employment-related asset (for example, a severance package or lump sum retirement distribution). | ||
| Example: Calculation of Net Documented Assets | ||
IRA (made up of stocks and mutual funds) | $ 500,000 | |
Minus 10% of $500,000 ($500,000 x .10) (assumes the borrower is not yet 59 1/2 years of age at the time this income is being calculated; therefore, it is subject to a 10% penalty for early distribution. This penalty must be levied against any cash being withdrawn for closing the transaction as well as the remaining funds used to calculate the income stream.) | (-) $50,000 | |
Total eligible documented assets | (=) $ 450,000 | |
Minus funds required for closing (down payment, closing costs, reserves) | (-) $100,000 | |
(a) Subtotal | (=) $ 350,000 | |
Minus 30% of $350,000 ($350,000 x .30) (assumes funds are in the form of stocks, bonds, and mutual funds) | (-) $105,000 | |
(b) Net Documented Assets | (=) $245,000 | |
Monthly income calculation ($245,000/360 (or applicable term of loan in months)) See Income Calculation/Payout Stream in table below. | $680.56/month | |
All of the following loan parameters must be met in order for employment-related assets to be used as qualifying income:
| Parameter | Fannie Mae Requirement |
|---|---|
| Maximum LTV/CLTV/HCLTV | 70% |
| Minimum Credit Score | DU: 620 Standard: Higher of 620 or minimum Credit Score per the Eligibility Matrix |
| Loan Purpose | Purchase and limited cash-out refinance only |
| Occupancy | Principal residence and second home only |
| Number of units | One- to four-unit properties |
| Income Calculation/Payout Stream | Divide “Net Documented Assets” by the amortization term of the mortgage loan (in months). |
Note: If the mortgage loan does not meet the above parameters, employment-related assets may still be eligible under other standard income guidelines, such as “Interest and Dividends Income,” or “Retirement, Government Annuity, and Pension Income.”
Original question:
A borrower has millions of dollars in liquid assets. They don't pull a regular income stream. They have historically just accessed funds as needed. I've googled this scenario through Fannie & Freddie. It looks as though there's a path to use asset depletion as a source of income with Freddie. Do we offer a product that will allow for this? If so, what might the documentation requirements be?
The buyer is deciding between using us, their private banker, or paying cash for the property. They're looking to decide on this today, so a deal structure will not be an option.
|
Rate this Topic:
|
|||
|
