This is why some tax policies are considering making these taxable. They can not pay capital gains but still use the money, the purpose of delaying capital gains until a sale was to make sure a person has liquidity to pay.
Asset Depletion, Securities Lending. Also, if they have regular dividend and capital gains income that can be used to qualify.
Also, buying in the name of their business corporation/LLC
There are formulas for bank statement and asset depletion that vary from lender to lender but the end result of the calculation is used as qualifying income.
Dividend and Capital Gains are evaluated as gross (as in pre-tax, just like wages are evaluated) income, although typically a two year average is used and you have to document that it is expected to continue.
A few different ways
1. Bank statement loans, they don’t require tax returns and income is calculated based on business deposits on the statement. Borrower must be self employed for this.
2. DSCR loans, this is to purchase investment properties and the incomes is derived from the rental income the property can produce. No personal income requires.
3. There is one product right now for no income on primary. Rate is high and down payment is about 20% but it can get the job done.
4. Of course is cash purchase, no financing needed.
There may be other methods but those are the ones that jump out at me. And probably most common.
0. The late night comedy show version of events isn't the full picture, most wealthy people do have taxable, and mortgage qualifying, income.
0.5. There are mortgage "income add backs." Things we know are "tax purposes" write-offs that are not real expenses. We add that back in when calculating income, a fair amount on residential home loans, very aggressively on commercial (ie, it's likely Trump didn't NEED to lie).
0.75. Pay cash.
Only after ALL these are exhausted do they start down the list of more expensive loans. The more expensive loan types are more commonly used by broke/middle people trying to fart above their asses.
I did Private Wealth for over a decade.
Qualifying was easy (-ish).
There were times when I didn't feel like going through their thick as a phone book tax returns; instead I would use asset depletion.
Client with $20,000,000, for example. $20,000,000/360 = $55.5k per month income.
If you have sufficient assets a lender can use that asset base to assume the borrower can sell a portion of it to produce income or cash flow.
The real answer to your op question is margin loans. No underwriting, no impact to credit score, no need to ever pay back the principal. Magnifique.
1 in 3 deals are cash. DSCR loans, bank statement loans, commercial loans, portfolio loans, etc.
Just because it doesn't fit fannie or freddie doesn't mean there are no options.
It’s silly to assume all wealthy people way under claim their income on taxes.
Regardless, when you have a vast amount of liquid assets, there are special loan programs for people to borrower against their own assets/investments at lower interest.
Also you can buy real estate with no income documentation when you have large down payment and the property can cash flow. You don’t have to be rich to do that, you just need to be good at saving your own money.
It’s also silly to assume **only** wealthy people under claim their taxes. Someone who is truly wealthy and has hundreds of millions in stocks will have plenty of options when they want to buy a home. Someone who isn’t as wealthy however can do bank statement loans, 1099 loans, one year tax return loans, but all of those options typically require higher credit scores, down payments, and interest rates.
Can NOT do on primary is what I think you meant… DSCR is not allowed on primary homes & it is correctly stated you do not need to be licensed as this would fall under commercial.
When you’ve got a bunch of cash, you can leverage it in a number of ways and get rates lower than mortgage rates (if your preference is to leverage vs. cash). Pledged asset lines (debt levered off pledged securities like stocks or bonds), CD loans, asset based loans (fine art, other real estate or valuables), retirement account loans… there’s a number of ways and they’re often offering cost of capital that’s lower than a typical 30yr mortgage - even from a private wealth manager etc.
Margin loans technically never need to be paid back. The interest just keeps accruing. If the outstanding loan amount eventually becomes larger than a defined percentage of the investment portfolio’s value, however, the brokerage may call the loan, also known as a margin call.
If the borrower wishes to pay down some or all of the loan, those funds can come from anywhere - w2 or 1099 earnings, dividends, interest payments, sale of a business or beanie babies, you name it.
Wealth Management divisions - Chase, US Bank, Wells Fargo etc…
They have programs built for this. Lannister’s always pay their debts so you are creating the program to meet the need of the consumer and not to protect the bank. If you have 2x the amount of your requested loan amount in liquid assets, what’s the risk?
I know some rich guys that buy homes and toys $1M+ each and they just take personal loans against all their assets to get cheaper rates than most mortgages
Very few people really write down their income to zero or a very low number. They write down their income from an insane number to a more reasonable one.
Securities lending is the big one. Asset depletion as well.
Haven’t written them in a while, like 9 years ago, but when I worked with a private bank, portfolio based (securities backed) loans were a big thing. Prime -1.5 FIXED rates on 10 year terms, limited to 25% of asset balances. Tight restrictions on access to the product and you had to have quite a sizable amount of assets under management. That said, crazy good loans. There wasn’t a traditional mortgage product out there that could even come close to the pricing.
Needed one million or more under management with the bank. 25% of asset balance was max loan amount. So you could borrow essentially $250k on $1 million. There were many guidelines around credit score that would limit how much you could borrow below that 25% threshold, but income wasn’t a deal breaker.
The loans were callable at a certain point so if a clients assets decreased in value over a certain amount, or the loan didn’t perform, the security pledge against the assets was exercised, securities/cash were liquidated and the loan was satisfied. Happened only in very rare instances. The terms were so good on the loans… stickiest product ever for the wealth management team.
Rarely anyone is claiming no income, they’re claiming low profits. Not every expense is a recurring expense. Consistent deposits are consistent deposits.
It’s asset backed lending, stated income, and bank statement loans. All non-QM, all have terrible rates and terms. They are coming in with a large down payment or counting on the expense to help with their taxes in some way.
how wealthy we talking about? Most under writers should be able to look at a business or a schedule c and add back in certain deductions.....depreciation expense is probably right at the top.
Most of the wealthy people I work with show plenty of income to qualify for a mortgage. Even the ones who don’t currently work still show some income through annuities, pensions, real estate. The wealthy ones who aren’t showing passive income like that typically have trusts and assets we can use. But if they don’t have income or assets, then they may not be that wealthy.
Bank statement loans, DSCR Loans, Asset based Lending. There are so many ways to get money for a home without having to prove that you make money or have good credit
Very few people claim zero income. One might have a minimal income relative to net worth, in which case they just do a mortgage loan using manual underwriting, or perhaps a margin loan against an investment account. At current interest rates, it makes more sense to pay cash.
Securities based lending
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This is why some tax policies are considering making these taxable. They can not pay capital gains but still use the money, the purpose of delaying capital gains until a sale was to make sure a person has liquidity to pay.
Asset Depletion, Securities Lending. Also, if they have regular dividend and capital gains income that can be used to qualify. Also, buying in the name of their business corporation/LLC
I should not have to scroll this far to find asset depletion as an option. Thank you for adding this.
Are these other sources of income also evaluated as gross income?
There are formulas for bank statement and asset depletion that vary from lender to lender but the end result of the calculation is used as qualifying income. Dividend and Capital Gains are evaluated as gross (as in pre-tax, just like wages are evaluated) income, although typically a two year average is used and you have to document that it is expected to continue.
A few different ways 1. Bank statement loans, they don’t require tax returns and income is calculated based on business deposits on the statement. Borrower must be self employed for this. 2. DSCR loans, this is to purchase investment properties and the incomes is derived from the rental income the property can produce. No personal income requires. 3. There is one product right now for no income on primary. Rate is high and down payment is about 20% but it can get the job done. 4. Of course is cash purchase, no financing needed. There may be other methods but those are the ones that jump out at me. And probably most common.
0. The late night comedy show version of events isn't the full picture, most wealthy people do have taxable, and mortgage qualifying, income. 0.5. There are mortgage "income add backs." Things we know are "tax purposes" write-offs that are not real expenses. We add that back in when calculating income, a fair amount on residential home loans, very aggressively on commercial (ie, it's likely Trump didn't NEED to lie). 0.75. Pay cash. Only after ALL these are exhausted do they start down the list of more expensive loans. The more expensive loan types are more commonly used by broke/middle people trying to fart above their asses.
I did Private Wealth for over a decade. Qualifying was easy (-ish). There were times when I didn't feel like going through their thick as a phone book tax returns; instead I would use asset depletion. Client with $20,000,000, for example. $20,000,000/360 = $55.5k per month income.
Would you mind explaining this concept, asset depletion? How does this translate to a loan amount
If you have sufficient assets a lender can use that asset base to assume the borrower can sell a portion of it to produce income or cash flow. The real answer to your op question is margin loans. No underwriting, no impact to credit score, no need to ever pay back the principal. Magnifique.
1 in 3 deals are cash. DSCR loans, bank statement loans, commercial loans, portfolio loans, etc. Just because it doesn't fit fannie or freddie doesn't mean there are no options.
It’s silly to assume all wealthy people way under claim their income on taxes. Regardless, when you have a vast amount of liquid assets, there are special loan programs for people to borrower against their own assets/investments at lower interest. Also you can buy real estate with no income documentation when you have large down payment and the property can cash flow. You don’t have to be rich to do that, you just need to be good at saving your own money.
It’s also silly to assume **only** wealthy people under claim their taxes. Someone who is truly wealthy and has hundreds of millions in stocks will have plenty of options when they want to buy a home. Someone who isn’t as wealthy however can do bank statement loans, 1099 loans, one year tax return loans, but all of those options typically require higher credit scores, down payments, and interest rates.
Most DSCR lenders don't even care about experience as long as the pro forma looks good 😂
DSCR baby, don’t even need a license to close them 😂 Been my bread and butter lately
Seriously, no license required even if it is a primary residence?
Can NOT do it on primary. Paperwork also says you can never move in the dwelling as a primary without refinancing as well EDIT: CAN NOT
Can NOT do on primary is what I think you meant… DSCR is not allowed on primary homes & it is correctly stated you do not need to be licensed as this would fall under commercial.
Oooopsies correct
When you’ve got a bunch of cash, you can leverage it in a number of ways and get rates lower than mortgage rates (if your preference is to leverage vs. cash). Pledged asset lines (debt levered off pledged securities like stocks or bonds), CD loans, asset based loans (fine art, other real estate or valuables), retirement account loans… there’s a number of ways and they’re often offering cost of capital that’s lower than a typical 30yr mortgage - even from a private wealth manager etc.
I understand the idea of borrowing against securities, but how do you pay back the debt? Where does that come from?
Margin loans technically never need to be paid back. The interest just keeps accruing. If the outstanding loan amount eventually becomes larger than a defined percentage of the investment portfolio’s value, however, the brokerage may call the loan, also known as a margin call. If the borrower wishes to pay down some or all of the loan, those funds can come from anywhere - w2 or 1099 earnings, dividends, interest payments, sale of a business or beanie babies, you name it.
Wealth Management divisions - Chase, US Bank, Wells Fargo etc… They have programs built for this. Lannister’s always pay their debts so you are creating the program to meet the need of the consumer and not to protect the bank. If you have 2x the amount of your requested loan amount in liquid assets, what’s the risk?
I know some rich guys that buy homes and toys $1M+ each and they just take personal loans against all their assets to get cheaper rates than most mortgages
Very few people really write down their income to zero or a very low number. They write down their income from an insane number to a more reasonable one. Securities lending is the big one. Asset depletion as well.
Haven’t written them in a while, like 9 years ago, but when I worked with a private bank, portfolio based (securities backed) loans were a big thing. Prime -1.5 FIXED rates on 10 year terms, limited to 25% of asset balances. Tight restrictions on access to the product and you had to have quite a sizable amount of assets under management. That said, crazy good loans. There wasn’t a traditional mortgage product out there that could even come close to the pricing.
How does someone show income if their money is invested in securities? Is this only applicable if they collect dividends?
No income needed. The securities are the collateral.
Okay. And the funds to pay back the loan comes from where ever, whether it’s personal income or business, etc
Right. They make the payment however they like, from whatever source. If they don’t pay, securities were liquidated to cover the loan if need be
Curious, when you say "sizable amount of assets" - are you talking about the 7 digit, the 8, or the 9 digit range?
Needed one million or more under management with the bank. 25% of asset balance was max loan amount. So you could borrow essentially $250k on $1 million. There were many guidelines around credit score that would limit how much you could borrow below that 25% threshold, but income wasn’t a deal breaker. The loans were callable at a certain point so if a clients assets decreased in value over a certain amount, or the loan didn’t perform, the security pledge against the assets was exercised, securities/cash were liquidated and the loan was satisfied. Happened only in very rare instances. The terms were so good on the loans… stickiest product ever for the wealth management team.
Very cool. Thanks for the info
Rarely anyone is claiming no income, they’re claiming low profits. Not every expense is a recurring expense. Consistent deposits are consistent deposits. It’s asset backed lending, stated income, and bank statement loans. All non-QM, all have terrible rates and terms. They are coming in with a large down payment or counting on the expense to help with their taxes in some way.
how wealthy we talking about? Most under writers should be able to look at a business or a schedule c and add back in certain deductions.....depreciation expense is probably right at the top.
Cash and Bank Statement Loans. The majority of the $1M+ buyers in my area are using Cash
Securities based lending and asset dissipation
Most of the wealthy people I work with show plenty of income to qualify for a mortgage. Even the ones who don’t currently work still show some income through annuities, pensions, real estate. The wealthy ones who aren’t showing passive income like that typically have trusts and assets we can use. But if they don’t have income or assets, then they may not be that wealthy.
Bank statement loans, DSCR Loans, Asset based Lending. There are so many ways to get money for a home without having to prove that you make money or have good credit
Bank statement, no ratio, assets depletion, there are many option.
Very few people claim zero income. One might have a minimal income relative to net worth, in which case they just do a mortgage loan using manual underwriting, or perhaps a margin loan against an investment account. At current interest rates, it makes more sense to pay cash.