Often, self-employed individuals and retirees find it difficult to make a choice when looking for a mortgage. The reason is that they don’t have an income statement to show but have some assets under their ownership. If you are one of them, you may be thinking whether you can qualify for loan. In this article, we are going to talk about asset based mortgage.
Although it can be difficult, you can get a mortgage loan. Today, loans that have the backing of Fannie Mae and Freddie Mac can be issued based on assets like 401 (k) and IRAs in order to help applicants satisfy their income requirements. And the good thing is that it includes most of the loans granted these days.
There is a formula for this calculation. It subtracts the down payment amount from 70% of the assets that qualify and then divides the remaining amount by 360. And this gives a monthly income that is used in order to find out the loan amount and maximum payment that the applicant needs to pay after getting the loan.
According to HSH, the firm that provides mortgage information, if a borrower has $1 million dollar worth of assets, they can count $700,000. So, if you go for a mortgage, you can show $1917 in your monthly income after taking out $10k and doing all the calculations.
However, this is not enough for a big loan. It can be greatly helpful if you are in need of a modest loan to have enough money to buy your house. Aside from the assets, your pension, social security and other sources of income can help you apply for a bigger loan.
However, there is a catch as well. The asset, which includes dividends and interest earnings, can’t be considered part of your income. According to HSH, your must be completely qualified or vested to withdraw with zero penalties. At times, there is a penalty of 10% for conventional 401 (k) and IRAs.
Although lenders don’t tend to advertise the have an open-for-everyone asset-based loan option, they do offer them. You can begin your search by looking for loans that feature reasonable rates and fees. You can then discuss the matter with your mortgage broker to find out more.
Savvy investors may figure that taking out a low-rate loan rather than selling assets to buy a home will allow them to keep their retirement investments compounding.
Now, the question is, is it a good option for you? Generally, if you are retiree, you should not borrow a big amount, as you may not be able to find a good job to deal with your financial setback. Aside from this, the loan rates stay low as far as historical standards are concerned. Therefore, it’s possible to make the payments affordable.
If you are a retiree, you can try other options like buying a cheaper home or trying a reverse mortgage.
In short, if you are a freelancer or self-employed, you can give a go to an asset based mortgage after consulting your mortgage specialist.