Why Was My Jumbo Loan Denied Even With Millions in Assets?
It’s a frustrating and surprisingly common scenario for high-net-worth individuals in Las Vegas: you have a multi-million dollar investment portfolio, excellent credit, and a substantial down payment, yet your application for a jumbo loan is denied. The reason often has little to do with your wealth and everything to do with how traditional mortgage underwriting works.
Lenders must adhere to the federal 'Ability-to-Repay' (ATR) rule. This rule requires them to make a good-faith determination that you have the ability to repay the loan over its term. For conventional and most standard jumbo loans, this determination is almost exclusively based on a consistent, documented stream of income, primarily verified through:
- W-2s from an employer
- Two years of federal tax returns
- Recent pay stubs
If your wealth is held in assets like stocks, bonds, or retirement funds rather than a bi-weekly paycheck, the automated underwriting systems (and even the human underwriters) see a monthly income of zero. They aren’t equipped to evaluate your substantial net worth as a source of repayment. Your application is denied not because you can't afford the home, but because your financial profile doesn't fit into the standard underwriting box.
The Disconnect Between Net Worth and Qualifying Income
Imagine a retired tech executive living in Summerlin with a $4 million portfolio of stocks and bonds. They have no debt and want to buy a $1.8 million home with a 40% down payment. On paper, they are an ideal borrower. However, because they have no 'job' and draw funds from their portfolio as needed, they have no W-2 income. The lender's system flags this as a high-risk application due to a lack of verifiable recurring income, leading to a swift denial. This is the exact problem that asset-based lending solves.
What Is an Asset Depletion or Asset Qualifier Loan Program?
An asset depletion loan, also known as an asset qualifier or asset-based mortgage, isn’t a specific type of loan. Instead, it's a calculation method used by lenders to convert the value of your liquid assets into a qualifying monthly income stream. This allows borrowers without traditional employment income to meet the ATR rule and secure financing.
This method is a cornerstone of Non-Qualified Mortgages (Non-QM). These are loans that operate outside the strict guidelines of 'Qualified Mortgages' defined by the Consumer Financial Protection Bureau (CFPB). Non-QM lenders have more flexibility in their underwriting and can use common-sense approaches like asset depletion to evaluate a borrower's true financial capacity.
The core concept is simple: the lender takes the total value of your eligible, liquid assets, divides it by a specific term (usually the loan term, like 360 months for a 30-year mortgage), and uses the result as your monthly income.
Example Calculation:
- Total Eligible Assets:
$3,600,000 - Loan Term:
360 months (30 years) - Calculation:
$3,600,000 / 360 = $10,000 - Qualifying Monthly Income:
$10,000
This calculated income can then be used to satisfy debt-to-income (DTI) ratio requirements, unlocking jumbo loan approval.
How Do Lenders Turn My Stock Portfolio into Qualifying Income in Nevada?
The process of converting assets into income is more detailed than the simple example above. Lenders follow a specific, multi-step process to ensure the calculation is sound and manages their risk, especially with volatile assets like stocks.
Step 1: Verification of Assets
First, you must provide complete documentation for all assets you intend to use. This means full, recent statements for brokerage accounts, mutual funds, savings, and retirement accounts.
Step 2: Applying a 'Haircut' for Volatility
Lenders recognize that the value of stocks, bonds, and mutual funds can fluctuate. To account for this market risk, they apply a 'haircut', meaning they will only consider a percentage of the account's value.
- For liquid cash (checking, savings), they typically use 100% of the value.
- For securities (stocks, bonds), they typically use 70% of the value.
- For retirement funds, they might use 60-70%, with additional rules.
Example: If you have a $2,000,000 stock portfolio, the lender will use $2,000,000 * 70% = $1,400,000 as the starting value for their calculation. The data, information, or policy mentioned here may vary over time.
Step 3: Subtracting Funds for Closing
Next, the lender will subtract the total amount of money you need for the transaction itself. This includes your down payment and all estimated closing costs. The income calculation is based only on the funds that will remain after the home purchase is complete.
Example (Continuing from above):
- Asset Base:
$1,400,000 - Down Payment on a $1.5M Home:
$300,000 - Estimated Closing Costs:
$25,000 - Final Asset Base for Calculation:
$1,400,000 - $300,000 - $25,000 = $1,075,000
Step 4: Dividing by the Amortization Term
The final step is to divide this net asset figure by the number of months in the loan term. Some lenders use a standard term (like 240 or 360 months) regardless of the loan, while others match it to your specific loan term. The data, information, or policy mentioned here may vary over time.
Example (Final Calculation):
- Final Asset Base:
$1,075,000 - Loan Term:
360 months - Qualifying Monthly Income:
$1,075,000 / 360 = $2,986
This $2,986 becomes your verifiable monthly income for underwriting purposes.
What Specific Types of Assets Can I Use for This Loan?
Lenders prioritize assets that are liquid and easily accessible. The most commonly accepted assets include:
- Checking and Savings Accounts: Valued at 100%.
- Money Market Accounts & CDs: Valued at 100%.
- Stocks, Bonds, and Mutual Funds: Publicly traded securities in a brokerage account. Valued at a percentage (e.g., 70%) to buffer against market swings.
- Retirement Accounts (401k, SEP, IRAs): These are eligible but come with a key stipulation. Most lenders require the borrower to be of retirement age (typically 59.5 years old) to ensure funds can be withdrawn without penalty. The value is also subject to a haircut (e.g., 60-70%).
- Vested Stock Options: The vested amount can often be included.
Assets that are generally not eligible for depletion are illiquid. This includes equity in other real estate, business assets, personal property like art or cars, and most forms of cryptocurrency. The data, information, or policy mentioned here may vary over time.
Are the Rates and Terms Different for Asset-Based Mortgages?
Yes, you should expect rates and terms for an asset qualifier loan to differ from a traditional jumbo loan. Because these are Non-QM products, they represent a slightly higher risk to the lender, which is reflected in the pricing.
- Interest Rates: Expect interest rates to be 0.75% to 2.0% higher than what you might see advertised for a conventional jumbo loan. For instance, if a prime jumbo rate is 6.75%, an asset depletion loan might be priced between 7.5% and 8.75%, depending on your credit score, loan-to-value ratio, and the quality of your assets.
- Loan Terms: The good news is that these loans are widely available with standard terms, including 30-year fixed-rate mortgages and various Adjustable-Rate Mortgages (ARMs) like 5/1, 7/1, and 10/1. Interest-only options, which are popular with jumbo borrowers, are also frequently available.
The data, information, or policy mentioned here may vary over time.
What Is the Minimum Net Worth Needed to Be Eligible?
There isn't a magic 'minimum net worth' number. Eligibility is determined by having sufficient liquid assets to cover three key things:
- The Down Payment: For jumbo loans, this is typically 20% or more.
- Closing Costs: Usually 2-5% of the loan amount.
- Post-Closing Reserves: This is a critical requirement. Lenders need to see that you will still have a significant liquid cushion after the transaction closes. For a jumbo loan, this requirement could be 12, 24, or even 36 months' worth of total monthly housing payments (PITI: Principal, Interest, Taxes, and Insurance).
Example:
- Purchase Price:
$2,000,000 - Down Payment (25%):
$500,000 - Estimated Closing Costs:
$40,000 - Monthly PITI:
$12,000 - Required Reserves (24 months):
24 * $12,000 = $288,000 - Total Liquid Assets Needed:
$500,000 + $40,000 + $288,000 = $828,000
In this scenario, your liquid assets must total at least $828,000 to even be considered for the loan. The data, information, or policy mentioned here may vary over time.
Can I Use This Strategy to Buy a Luxury Second Home?
Absolutely. Asset depletion is an extremely popular and effective strategy for financing luxury second homes and vacation properties, especially in markets like Las Vegas. Many high-net-worth individuals purchase secondary residences without wanting to liquidate their well-performing investments to pay cash.
However, be aware that underwriting standards for a second home can be more stringent than for a primary residence. A lender may require a larger down payment (e.g., 30% instead of 20%) or more post-closing reserves to approve the loan. The data, information, or policy mentioned here may vary over time.
What Is the Exact Documentation Needed for My Investment Accounts?
To ensure a smooth underwriting process, you need to provide clear and complete documentation. Be prepared to submit the following:
- Full, recent account statements: The two most recent monthly or quarterly statements for every asset account you are using for qualification.
- All pages are required: Do not submit a summary page. Lenders need to see every page of the statement, even if some are blank or contain legal disclosures.
- Clear identification: Statements must clearly show your name (as the borrower), the financial institution’s name, and the account number.
- Proof of terms: For retirement accounts, you will need to provide documentation on the terms of withdrawal and proof of your age to confirm you meet the requirements for penalty-free access.
- Letter from a financial professional: Some lenders may ask for a letter from your CPA or financial advisor to confirm the nature and liquidity of the assets.
The data, information, or policy mentioned here may vary over time.
Your wealth is in your portfolio, not a bi-weekly paycheck, and your mortgage application should reflect that. If you're ready to explore how an asset qualifier can unlock jumbo financing for your Las Vegas home, take the first step. Apply now to see what options are available for your unique financial situation.
Author Bio
David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping clients with unique financial situations, including those recovering from foreclosure or bankruptcy. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates for investors and homebuyers alike. Praised for exceptional customer service, David has helped hundreds of families with a 97% satisfaction rate, guiding them to the mortgage they deserve.
References
Consumer Financial Protection Bureau: What is a qualified mortgage?
