Mgic Asset Depletion Calculator Freddie Mac

MGIC Asset Depletion Formula:

\[ Income = \frac{Assets \times 0.7}{240} \]

Income (monthly income):

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1. What is the MGIC Asset Depletion Calculator?

The MGIC Asset Depletion Calculator for Freddie Mac is used to calculate monthly qualifying income based on a borrower's liquid assets. This method is particularly useful for self-employed borrowers or those with significant assets but variable income.

2. How Does the Calculator Work?

The calculator uses the MGIC asset depletion formula:

\[ Income = \frac{Assets \times 0.7}{240} \]

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: The formula calculates a monthly income stream by distributing 70% of the borrower's assets over a 20-year period.

3. Importance of Asset Depletion Calculation

Details: Asset depletion income calculation is crucial for mortgage underwriting when traditional income documentation is insufficient. It helps lenders qualify borrowers based on their liquid assets rather than conventional income sources.

4. Using the Calculator

Tips: Enter total liquid assets in dollars. The calculator will compute the monthly qualifying income based on Freddie Mac's MGIC asset depletion guidelines.

5. Frequently Asked Questions (FAQ)

Q1: What types of assets qualify for this calculation?
A: Typically includes liquid assets such as cash, stocks, bonds, mutual funds, and retirement accounts. Real estate and business assets are usually excluded.

Q2: Why is only 70% of assets used in the calculation?
A: The 70% factor accounts for potential taxes, penalties, or market fluctuations that might reduce the actual available funds.

Q3: Why is the 240-month period used?
A: The 20-year (240-month) period is a standard mortgage term used for conservative income projection in underwriting.

Q4: Can this method be combined with other income sources?
A: Yes, asset depletion income can often be combined with other verifiable income sources to meet qualifying requirements.

Q5: Are there minimum asset requirements?
A: Most lenders require significant asset levels, typically well above standard reserve requirements, to use this qualification method.