Employment-Related Assets as Qualifying Income
The following table provides the requirements for employment-related assets that may be used as qualifying income.
If a penalty would apply to a distribution of funds from the account made at the time of calculation, then the amount of such penalty applicable to a complete distribution from the account (after costs for the transaction) must be documented.
A borrower must only be considered to have unrestricted access to a 401(k) or IRA, SEP, Keogh retirement account if the borrower has, as of the time of calculation, the unqualified and unlimited right to request a distribution of all funds in the account (regardless of any possible tax withholding or applicable penalty applied to such distribution)
“Net documented assets” are equal to the sum of eligible assets minus:
(a) the amount of the penalty that would apply if the account was completely distributed at the time of calculation; and
(b) the amount of funds used for down payment, closing costs, and required reserves.
Ineligible assets are non-employment-related assets (for example, stock options, non-vested restricted stock, lawsuits, lottery winnings, sale of real estate, inheritance, and divorce proceeds). Checking and savings accounts are generally not eligible as employment-related assets, unless the source of the balance in a checking or savings account was from an eligible employment-related asset (for example, a severance package or lump sum retirement distribution). Virtual currency is not an eligible asset.
Example: Calculation of Net Documented Assets:
IRA (made up of stocks and mutual funds) : $500,000
Minus 10% of $500,000 ($500,000 x .10) : (-) $50,000
(Assumes a 10% penalty applies for early distribution, which must be levied against any cash being withdrawn for closing the transaction as well as the remaining funds used to calculate the income stream.)
Total eligible documented assets : (=) $450,000
Monthly income calculation
($450,000/360 (or applicable term of loan in months)) : $1250/month
Divide “Net Documented Assets” by the amortization term of the mortgage loan (in months).
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