Your Assets Are Your Income: How the Asset Utilization Loan Works

Your Assets Are Your Income: How the Asset Utilization Loan Works

By Jake Burt, Burt Lending Team at Neighborhood Loans

Every month I talk to an investor with a seven figure balance sheet and a tax return that says they barely work. Great for taxes. Terrible for a loan application. Asset utilization, sometimes called asset depletion, fixes that mismatch by converting what you own into qualifying income.

Here is the math most borrowers never see. The lender takes your eligible liquid assets, applies a haircut by account type, subtracts whatever you are using for the down payment, closing costs, and reserves, then divides what remains by a fixed number of months. That result is treated as monthly income. Divisors vary widely by lender, commonly anywhere from 36 to 120 months. The shorter the divisor, the more income the same assets generate, so two lenders can look at identical statements and produce very different approvals. On this product, shopping the guideline matters as much as shopping the price.

The haircuts are where deals live or die. Cash, checking, savings, and money market funds typically count at full value. Stocks, bonds, and mutual funds usually count at 70 to 90 percent to absorb market swings. Retirement accounts often count at 50 to 80 percent, and many programs only allow them if you are over 59 and a half or already taking distributions. Crypto is excluded almost everywhere. Business accounts can count, but expect to document your ownership percentage and show the withdrawal will not harm the company.

Quick illustration: 1.2 million dollars in eligible assets after haircuts, divided by an 84 month divisor, is over 14,000 dollars a month in qualifying income. No paycheck required.

Three profiles keep showing up on these files. The recently retired investor living off a portfolio with almost no reportable income. The seller sitting on proceeds from a business or property sale. And the investor whose write offs are so aggressive that even bank statement and P and L programs come up short.

One distinction worth filing away: DSCR qualifies the property, so it only works on investment properties. Asset utilization qualifies you, which means it can finance a primary residence or second home where DSCR was never an option.

The tradeoffs are real. Pricing sits in non QM territory. Most programs want 30 to 90 days of statements, and large recent deposits get questioned, so season your money before you apply. And proceeds from the transaction itself never count toward the calculation.

If your balance sheet is strong but your tax return is quiet, send me your account statements and I will run the numbers across multiple guidelines so you can see exactly what your assets qualify you for. Text or call me at 480-341-0920.

Programs, terms, and eligibility vary by lender, scenario, and state. Educational content only, not a commitment to lend or a guarantee of approval.