Loan Officer Training 09/24/2024 - How To Structure Asset Utilization Loans

Ready to master the art of structuring Asset Utilization Loans? In this episode of Loan Officer Training, we’re breaking down everything you need to know about this powerful financing option. Asset utilization loans allow borrowers to leverage their liquid assets, rather than traditional income, to qualify for a mortgage—perfect for high-net-worth clients, retirees, or those with unconventional income streams. We’ll walk you through the steps of evaluating assets, calculating qualifying income, and tailoring loan structures to fit the unique needs of these clients.

If you want to boost your expertise and close more deals with affluent clients, this episode is packed with actionable insights to help you succeed. Tune in to learn the strategies that can take your loan structuring skills to the next level!


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The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation! 

Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!

Our team of over 350 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as access thousands of mortgage programs using Alternative Income Documentation such as Bank Statement Mortgages, P&L Mortgages, Asset Based Mortgage Programs, No Ratio CDFI Loan Programs, DSCR Investor Mortgages, Commercial Mortgages, Fix and Flip

Catch all the episodes of the Loan Officer Training Podcast at https://themortgagecalculator.com/Page/Loan-Officer-Training-Series-Podcast

Catch all the episodes of the Loan Officer Training Podcast at https://themortgagecalculator.com/Page/Loan-Officer-Training-Series-Podcast

Loan Officers for Unlimited Free Non-QM Leads & Trainings Join The Mortgage Calculator at https://themortgagecalculator.com/join

The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation!

Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!

Our team of over 350 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as access...

Transcript

Restream recording Sep 24, 2024 • 04:01:46 PM: 0:14

So welcome everyone. My name is Kyle Hiersche. I am the COO of the Mortgage Calculator joined here by our CSO, Jose Gonzalez. We are a lender that specializes in non QM loans and what we do every Tuesday, Wednesday, and Thursday at 12 p. m. Eastern on this show is a different loan officer training topic. Today's topic is something we're very familiar with here because we specialize in non QM loans, which is how to structure asset utilization loans. So I'll let Jose go ahead and take over. And get into the presentation. So, good afternoon or good morning, everyone, depending what, uh, what region of the country or region of the world you're in. Today's, uh, training is definitely one of those mindblower options, right? Uh, most people may not even know that this exists until they join the mortgage calculator. And then they see all of the, uh, wide array of programs that we have and asset utilization is definitely one of those that, uh, you can pull out of your magician's hat. To make it happen. So let's get right into it. How to structure an asset utilization. So what exactly do we mean by an asset utilization? That is a loan that uses the borrower's liquid and I stress liquid assets to determine the qualifying income. Uh, there are many asset, uh, types that fall under, um, The ones that we can use for income. We're looking at the checking accounts, money market accounts, savings accounts, certificates of deposit stocks, bonds. funds, annuities, 401k and other retirement accounts. And, uh, life insurance policies that have a surrender value, a cash value. So there are certain policies that as you pay for them, you're actually putting it into a type of an investment, which does have a cash value. Now, very important to note, no tax returns ever required for a loan where the borrower's income is determined via asset utilization. Super important here is that the assets do not need to be pledged. This is not like a loan from a brokerage house, one of the investment brokerage homes, which depending how much you have in your portfolio, They'll, they'll let you borrow against your asset, but then obviously that asset is pledged. Uh, it's like they put a lien on it, and if you don't pay, then they go and confiscate your asset as payment. So this is not that type of loan, which is, uh, what makes this so special. Now, um, another important point to note here, um, one of the ones that sometimes gets this loan type in trouble to close is that the assets need to be seasoned to be eligible to use as income. That means that the assets need to have been held by the borrower Already as an asset, like their, whatever it is that you're using the stocks, uh, for a certain number of months, in most cases, for most of the, uh, options for asset utilization for months, seems to be a recurring theme as to, excuse me, the amount of seasoning that is required for the assets to be eligible to be used as income. But then I, I, again, I do stress. It is very important. Um, That we review the guideline of the specific option that our borrower is considering or that we're considering for the loan structure for our borrower to ensure that you can use it because you don't want to think that you're going to be able to use 800, 000 in mutual funds and they only had it, uh, three months and one week and not four months. And now, you know, You would have to wait. So what are the transaction types that we would be looking at here? Eligible borrowers. Who is the asset utilization loan a good for, right? So this loan is a great option. Now it's obviously going to be pretty obvious here, but you never know some of these, right? It's a great option for high net worth individuals, not wanting to disclose their income. nor their tax returns, right? They have, they may have a lot of money. They may not want you to know their trade secrets, uh, who their LLCs are and all that other kind of stuff. So they may just want to say, Hey, here's my assets. Qualify me based on that. Uh, because everybody else is on a, uh, you know, as needed to no basis on my personal finances. So as long as they're willing to accept whatever structure is for the asset utilization loan, you know, perfect to close the route, close the loan via that route. Now, you may have individuals getting paid in stocks. Maybe they get paid in, uh, Some type of stock options or something like that, as long as they have the account for the stocks and they have those stocks for the minimum number of months in the account, then you would be able to use stocks. as income as well. Now, here's one that you may not always consider, but you could have retirees with large portfolios, but limited retirement income. This is actually possible to be combined, not just with non QM, But actually there is a work around for conventional loans when you have retirees or borrowers 62 years or older that have a very limited income, uh, but they have a good net worth in their retirement account. You could actually add income via asset utilization to a Fannie or Freddie loan. I bet you didn't know that, right? Well, if you did, good for you, but that's definitely one of the great workarounds that we have for asset utilization that is not so obvious. Now in the non QM side, it can be used as supplemental income as well, right? I just mentioned Fannie, Freddie. using it as supplemental income to the fixed income or whatever they may have. In non QM, we do have some options where you may be using a certain income type, be it W 2, bank statement, whatever it may be, but you want to add supplemental income. So then we have some options. For example, and this is straight out of one of the guidelines that says that the DTI is 60 percent or lower using full income. Then divide the total available assets by 36 to arrive at the supplemental income usable from asset utilization. So this is where the asset utilization is not the main income, it's supplemental. So one of the options, it allows us to do this. So again, I'm not going to go through all of the different options, uh, and what their guidelines state, but just note that this is an additional feature. where asset utilization came in, right? So we're talking about supplemental income for Fannie and Freddie and we're talking about supplemental income for non QM. And please note that eligible borrowers, we're looking at our U. S. citizens, U. S. permanent resident aliens, U. S. non permanent resident aliens. With us credit, of course, in a non permanent resident alien is a borrower living in the U. S. With leak with some type of legal status to be here living here and work here as well. One of the common ones that many people may not be aware of is. Uh, a borrower that has an E2 visa, that's uh, an investment visa that allows us to, allows the borrower to own and manage their company here in the U. S. legally. So they're actually working here managing their business. That borrower would be a non permanent resident alien and as long as that borrower has their valid E2 visa and has. U. S. credit and has whatever income documentation you need. In this case, we're talking about asset utilization, right? Then that borrower would qualify the same way as U. S. national borrower citizens and permanent residents. Same LTV, same benefits. So keep that one in mind. Uh, you also have now the, the E2 visa holder isn't going to have They're not going to have a work authorization document per say. They're not going to have a, uh, uh, like a, a card because the visa itself is the authorization document to own a business so they can own a business and manage their business, uh, but not work for somebody else. Any other type of individual as an employee would actually have to have the, uh, the employment authorization documents, a card, the EAD card First time homebuyers are okay on this program. Some options also allow for I 10 borrowers, that's the borrower living here in the U. S., working here in the U. S. with U. S. based credit, but does not have legal status, right? They do not have a work permit, they do not have a valid visa, but they're here working, filing tax returns. And as you can probably deduce from who is eligible, who is not eligible is a foreign national borrower for national borrowers not applicable to this program. So let's break it down here in our final slide. This is where we put it all together. Now, I will say asset utilization. Um, It probably is going to rank up there as one of the easiest loans that you're going to do for income calculations. It's going to rank right up there with the DSCR loan, right? Because the DSCR loan, um, is going to use the rental income generated from the property, whether it be from long term rent. Or from short term rent, right? That's going to be the only, uh, determining factors there, um, how you're going to calculate the income for the DSCR, well, as a utilization, just as simple, right? But one thing to note, just like with every other non QM loan, income calculations for the asset utilization are going to vary between options selected because all the guidelines are specific. Okay. to each option, right? So, as an example, uh, one of our investors has the calculation for income for asset utilization as monthly income equals net qualified assets divided by 6060 divided by 60 months. Now, some say 84 or whatever they may say. So, that's the first thing you have to look at there, right? Is how many months What is going to be the, what we're going to divide the net qualified assets by. Obviously the lower the number, the higher the assets. So we're dividing by 48. We're gonna have a higher income, should I say we? If the number is instead of 60 is uh, 72 or 84, then our income amount is going to be lower. So let's break this down. Now they're talking about net qualified assets, right? Well, we got us. The way we're going to qualify our assets is to make sure that they meet. The, the points we're going to cover right now. So first thing to consider is that the qualified assets must be sufficient to cover the new loan amount, plus the down payment, plus the closing costs, plus required reserves, plus five years of the current PITI and evapogated association fee. So that's the math, right? Now the 60 months. Is one item to consider of the, uh, the equation, but the net qualified assets is the sum of all of those components there. And it must be enough. If it's not enough to cover, uh, all of those obligations, the five, the five years of the PITI, the reserves, the closing costs, the down payment plus a new loan, then the loan is not going to qualify. Then your qualified assets, your net qualified assets are enough. So to me, uh, the litmus test, let's call it for this long. So that's how you determine the amount of the net qualified assets. And once you determine it isn't up, then you plug it into the equation. But you have to make sure that you have seasoning of the assets right. In order for it to be a net qualified assets. You must have looked at each of the statements to make sure you have at least four months worth of statement, at least a four month history, assuming of course that the guideline that you're reviewing. Asks for four months of seasoning. This is an example from one of our guidelines out there that does ask for four months and that does divide by 60 and does state about the required five years, current monthly obligation of PITA, everything that I've already stated there. So now assuming you, you have the seasoning of the assets. Then you're also going to have a minimum value for each asset type or, uh, to be able to be used for income, right? You can't just string them all along 20, 000 here, 10, 000 there, have 100 accounts. You know, this is really for people with high value net worth individuals. So you are going to have a minimum amount of assets. That are going to be required to be able to use it for income. And probably another of the most missed points, uh, when calculating, uh, the income and when determining your qualified assets and the net qualified assets amount. Is that the asset value will be adjusted for asset type and the liquidity that is associated with each asset type. This is again, very what this, this part right here is one of the ones to be aware that does definitely change. From option to option when you are reviewing the guidelines, right? One guideline may say, for example, that stocks, bonds, and mutual funds are reviewed at 80 percent or 70% And another value may say that they're reviewed at 100%. So don't assume because you know what happens when you assume. Just reconcile to the guidelines and note there what it states. Now, the one that I happened to review, uh, that I reviewed this morning, uh, grants 100 percent to all of the, uh, components there and checking, savings, money market, even stocks, bonds, mutual funds and CDs. are at 100%. And but then retirement accounts and life insurance policies with with a cash surrender value, which are definitely much less liquid, have an adjusted value, it could be 80%, or it could be 70%. In the case of this particular option, it was 70%. So when you're calculating the net Uh, uh, qualified asset value, then again, you're going to check for seasoning. You're going to check to make sure you have enough in the total assets, uh, to be able to use it. You're going to adjust for liquidity, giving it a haircut. Some are at a hundred percent, others at 70%, you're going to do the math. You're going to have your net qualified asset value, divide that by the number of months in this case would be 60 months. And that's going to give us our monthly income. So again, no, I have no worries about tax returns, uh, tax transcripts, uh, variable income commission, uh, continuity for three more years or any of that stuff, just basic. Seasoning and of the asset, the asset type, minimum asset value, and calculate qualified assets divided by the number of months, and you are good to go with your income. So do not, uh, leave money on the table. If you have those high net worth individuals and you're trying to figure out how to calculate them and income doesn't work out. This is a solution or else also if you need to add supplemental income, like I mentioned for agency loans where you have a retired borrower on fixed income, this can be used and for non QM, it can be used as well as supplemental income. All right. Thank you, Jose. Okay, I don't see any questions, but definitely amazing program there. And like you said, a lot of people don't think about it. If your borrower has a ton of assets, you have them, you know. Don't necessarily have to worry about a lot of other stuff, right? Yeah, we just, uh, disclosed a few of these files recently. Asset utilization with rates in the sixes, right? It was a mind blower, 80 percent LTV. I think it was like a 6. 99 non QM low. So definitely that MLO saw, you know, didn't leave any money on the table. So make sure you all follow suit. All right. Perfect. Still no questions here. So we'll go ahead and wrap it up. Remember that we do this training every Tuesday, Wednesday, and Thursday at 12 PM Eastern time where we do a new loan officer training topic. So we will see you all tomorrow at 12 PM Eastern for the next episode of the loan officer training series with the mortgage calculator.