Should you go for an asset-based mortgage?

Often times, the self-employed and retirees have a hard time making a decision when shopping for a mortgage. The reason is that they don’t have an income statement to show, but they do have some assets under their ownership. If you are one of them, you may be wondering if you can qualify for a loan. In this article, we are going to talk about asset-based mortgages.

Although it can be difficult, you can get a home loan. Today, loans backed by Fannie Mae and Freddie Mac can be issued based on assets such as 401 (k) and IRAs to help applicants meet 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. Subtract the amount of the down payment from 70% of the qualifying assets and then divide the remaining amount by 360. And this gives a monthly income that is used to find out the loan amount and the maximum payment that the applicant must pay after obtaining the loan.

According to HSH, the company that provides information on mortgages, if a borrower has assets worth $ 1 million, he can count $ 700,000. So if you opt for a mortgage, you can show $ 1917 in your monthly income after taking out $ 10k and doing all the math.

However, this is not enough for a large loan. It can be of great help if you need a modest loan to have enough money to buy your home. Aside from assets, your pension, social security, and other sources of income can help you apply for a larger loan.

However, there is also a catch. The asset, which includes dividends and interest, cannot be considered part of your income. According to MSM, you must be fully qualified or vested in retirement without penalty. Sometimes there is a 10% penalty for conventional 401 (k) and IRA plans.

While lenders don’t tend to advertise that they have an asset-based loan option open to everyone, they do. You can begin your search by looking for loans that have reasonable rates and fees. You can then discuss the matter with your mortgage broker to learn more.

Savvy investors may think that taking out a low-rate loan instead of selling assets to buy a home will allow them to keep capitalizing on their retirement investments.

Now, the question is, is it a good option for you? Generally, if you are retired, you shouldn’t borrow a large amount as you may not be able to find a good job to deal with your financial setback. Apart from this, the loan rates remain low as far as historical standards are concerned. Therefore, it is possible to make 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 self-employed or self-employed, you can try an asset-based mortgage after consulting your mortgage specialist.

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