Oftentimes, self-employed and retired individuals find it difficult to make a choice when looking for a mortgage. The reason is that they do not have an income statement to show but they do have some assets under their ownership. If you are one of them, you might be thinking about whether you qualify for a loan. In this article, we will talk about asset based mortgage.
Although difficult, you can get a mortgage. Today, loans backed by Fannie Mae and Freddie Mac can be issued based on assets like 401(k)s and IRAs to help applicants meet their income requirements. And the good thing is that it covers most of the loans given out these days.
There is a formula for this calculation. Subtracts the down payment amount from 70% of the qualifying assets and then divides the remaining amount by 360. This gives a monthly income which is used to find out the loan amount and the maximum payment the applicant has to make after getting the loan.
According to HSH, the company that provides mortgage information, if a borrower has $1 million in assets, he can calculate $700,000. So, if you go for a mortgage, you can show $1917 in your monthly income after you take out that $10k and do all the math.
However, this is not enough to obtain a large loan. It can be very useful 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 problem. The asset, which includes dividends and interest earnings, cannot be considered part of your income. According to the HSH, you must be fully eligible or authorized to withdraw without any penalties. Sometimes, there is a 10% penalty for traditional 401(k)s and IRAs.
Although lenders tend not to advertise an asset-based loan option that is open to all, they do offer one. You can begin your search by looking for loans that feature reasonable rates and fees. You can then discuss it with your mortgage broker to find out more.
Smart investors might think that taking out a low-interest loan instead of selling the assets to buy a home would allow them to keep their retirement investment at double.
Now, the question is, is it a good option for you? In general, if you are retired, do not borrow a large amount, as you may not be able to find a good job to handle a financial setback. Regardless, loan rates remain low by historical standards. Therefore, it is possible to make payments more affordable.
If you are retired, you can try other options such as buying a cheaper home or trying to get a reverse mortgage.
In short, if you are a freelancer or self-employed, you can go for an asset based mortgage after consulting your mortgage professional.