1. What is FHLMC Asset Depletion Calculation?

The FHLMC (Federal Home Loan Mortgage Corporation) Asset Depletion Calculation is a method used to determine qualifying monthly income based on a borrower's liquid assets. This approach is particularly useful for self-employed individuals or those with significant assets but irregular income.

2. How Does the Calculator Work?

The calculator uses the FHLMC Asset Depletion formula:

Where:

• \( Assets \) — Total liquid assets in dollars
• \( 0.7 \) — 70% of assets are considered usable
• \( 240 \) — Represents 20 years of monthly payments (20 years × 12 months)

Explanation: This formula calculates a monthly income stream by distributing 70% of the total assets over a 20-year period, providing a conservative estimate of sustainable monthly income from assets.

3. Importance of Asset Depletion Calculation

Details: Asset depletion calculations are crucial for mortgage underwriting, particularly for borrowers who don't have traditional employment income but possess significant liquid assets. This method helps lenders assess the borrower's ability to make monthly mortgage payments.

4. Using the Calculator

Tips: Enter the total value of liquid assets in dollars. The calculator will compute the monthly income amount that can be derived from these assets over a 20-year period using FHLMC guidelines.

5. Frequently Asked Questions (FAQ)

Q1: What types of assets are considered in this calculation?
A: Typically includes liquid assets such as cash, savings accounts, stocks, bonds, mutual funds, and retirement accounts. Real estate and other illiquid assets are usually excluded.

Q2: Why is only 70% of assets used in the calculation?
A: The 70% factor accounts for potential taxes, market fluctuations, and other considerations that might reduce the actual usable amount of the assets.

Q3: Why is the 240-month period used?
A: The 240-month period (20 years) represents a standard mortgage term and provides a conservative timeframe for asset depletion calculations.

Q4: Is this calculation accepted by all lenders?
A: While FHLMC guidelines are widely used, individual lenders may have variations in their asset depletion calculations. Always check with your specific lender for their requirements.

Q5: Can this calculation be used for other types of loans?
A: While primarily used for mortgage qualification, similar asset depletion calculations may be applied to other types of lending where income verification is challenging but assets are substantial.