Should you choose an asset-based mortgage?

Should you choose an asset-based mortgage?

Self-employed people and retirees often 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 they do own some assets. If you’re one of them, you might be wondering if you can qualify for a loan. In this article we will talk about asset based mortgage.

Although it may be difficult, you can get a mortgage loan. Today, loans backed by Fannie Mae and Freddie Mac can be issued based on assets such as 401(k)s and IRAs to help applicants meet their income requirements. And the good thing is that it includes a large part of the loans granted these days.

There is a formula for this calculation. It subtracts the amount of the down payment from 70% of the assets that qualify and then divides the remaining amount by 360. And this gives a monthly income that is used to establish the amount of the loan and the maximum payment that the applicant must to pay after receiving the loan.

According to HSH, the mortgage information firm, if a borrower has $1 million in assets, they can count $700,000. So if you go for a mortgage you can show $1917 monthly income after you take the $10k and do all the math.

However, this is not enough for a large loan. It can be very useful if you need a modest loan to have enough money to buy your house. In addition to assets, your pension, Social Security and other sources of income can help you apply for a larger loan.

However, there is a catch. An asset that includes dividends and interest income cannot be considered part of your income. According to HSH, you must be fully qualified or owned to withdraw with zero penalties. There is sometimes a 10% penalty for conventional 401(k)s and IRAs.

Although lenders are reluctant to advertise that they have an asset-based loan option open to everyone, they do offer them. You can start your search by looking for loans with reasonable interest rates and fees. You can then discuss the matter with your mortgage broker to find out more.

Savvy investors may find that taking out a low-interest loan instead of selling assets to buy a home will allow them to continue to grow their retirement investments.

Now the question is, is it a good option for you? Generally, if you are retired, you should not borrow a large amount as you may not be able to find a good job to handle your financial problems. In addition, lending rates remain low by historical standards. Therefore, it is possible for payments to be accessible.

If you’re retired, you can try other options, such as buying a cheaper home or trying a reverse mortgage.

In short, if you are a freelancer or self-employed person, you can opt for an asset-based mortgage after consulting with your mortgage specialist.

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