Reverse Mortgage Alternative: Asset-Depletion Loan for $1M+ Homes

Retirees with high-value homes often explore reverse mortgages as a way to tap into home equity without selling their property. However, for homeowners with over $1 million in assets and a strong financial portfolio, a more strategic, flexible option exists—asset-depletion loans. These loans offer an ideal reverse mortgage alternative, particularly for those who prefer to preserve equity and access funds with better loan terms.

What is an Asset-Depletion Loan?

An asset-depletion loan allows borrowers to qualify for a mortgage based on their liquid assets rather than traditional income streams like employment. This product is particularly beneficial for retirees or high-net-worth individuals who have substantial cash reserves or investment portfolios but little to no W-2 income.

Key Features:

• Loan approval is based on calculated income from assets.
  
• No employment or traditional income verification is required.
  
• Ideal for clients with $1M+ in liquid or semi-liquid assets.
  
• Can be used for purchasing or refinancing a primary or secondary residence.
  

Why Choose an Asset-Depletion Loan Over a Reverse Mortgage?

1. Preserve Equity and Control

Unlike reverse mortgages, which steadily erode home equity over time, asset-depletion loans allow you to retain more ownership in your home. This is especially important for individuals who want to pass their property on to heirs.

2. Better Loan Terms for High Net Worth

Asset-depletion loans often come with better interest rates and terms than reverse mortgages. This is particularly true for homes valued at over $1M, where reverse mortgage limits may not provide sufficient value.

3. Tax Planning Benefits

These loans enable more strategic income distribution and tax planning. Since loan proceeds are not considered income by the IRS, borrowers can manage taxable events more effectively, which is a major advantage for retirees.

4. Use the Loan for Any Purpose

Borrowers can use the funds from an asset-depletion loan however they like—investments, travel, medical expenses, or legacy planning—without the restrictions that come with reverse mortgages.

Who Qualifies for an Asset-Depletion Loan?

While underwriting criteria vary by lender, borrowers typically need:

• $1M+ in liquid or semi-liquid assets (e.g., savings, stocks, retirement accounts)
  
• Good credit score (typically 700+)
  
• Ability to cover closing costs and reserves
  

Many lenders calculate “depletion income” by taking a percentage of assets (e.g., dividing by 120 or 180 months), which then acts as the qualifying monthly income.

Use Case: Retired Couple with $2.5M in Assets

John and Susan, both recently retired, own a $1.4M home outright and hold $2.5M in investments. Rather than tapping into retirement accounts or selling assets and triggering capital gains, they used an asset-depletion loan to generate $1M in accessible cash for a second home purchase in Florida.

FAQs

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