Asset Depletion Calculator
This calculator estimates the equivalent annual income derived from your eligible assets over a standard depletion period. Lenders often use asset depletion to qualify borrowers who have significant assets but lower traditional income.
Enter the total value of your eligible assets. The calculation uses a standard 30-year depletion period.
Enter Eligible Asset Value
Understanding Asset Depletion & Calculation
What is Asset Depletion?
Asset depletion is a method lenders use to help borrowers qualify for loans (like mortgages) by converting a portion of their liquid assets into an equivalent monthly or annual income figure. This is particularly useful for self-employed individuals, retirees, or those with significant wealth but fluctuating or non-traditional income sources.
How Does it Work?
Instead of relying solely on traditional income (like salary or wages), a lender looks at a borrower's verified assets (e.g., savings, checking, stocks, bonds, mutual funds, retirement accounts - rules vary by lender and asset type). A standard formula is applied to these assets to determine how much "income" they can represent over a set period, typically 30 years for mortgages. This calculated income is then added to any traditional income the borrower has to determine their total qualifying income.
The Calculation Method Used Here
A common, simple method is to take the total value of eligible assets and divide it by the number of months or years in the depletion period. This calculator uses a standard 30-year period.
Equivalent Annual Income = Total Eligible Asset Value / 30 Years
Keep in mind that many lenders will first discount the asset value (e.g., use only 70% of the value for non-retirement accounts, or have different rules for retirement accounts) before dividing by the period. This calculator uses 100% of the value entered for simplicity.
Example Calculation (Using $500,000)
If you have $500,000 in eligible assets, using a 30-year depletion period:
Equivalent Annual Income = $500,000 / 30
Result: Equivalent Annual Income ≈ $16,666.67 per year.
This amount ($1,388.89 per month) would be added to your other qualifying income by a lender.
Asset Depletion Examples (Using 30-Year Period)
These examples show how different asset values translate to equivalent annual income:
Example 1: $100,000 in Assets
Scenario: Calculating equivalent income for a smaller asset base.
1. Known Value: Eligible Assets = $100,000.
2. Calculation: Annual Income = $100,000 / 30 years.
3. Result: Equivalent Annual Income = $3,333.33.
Conclusion: $100k in assets could be seen as adding about $3.3k per year to qualifying income.
Example 2: $250,000 in Assets
Scenario: Calculating equivalent income for a moderate asset base.
1. Known Value: Eligible Assets = $250,000.
2. Calculation: Annual Income = $250,000 / 30 years.
3. Result: Equivalent Annual Income = $8,333.33.
Conclusion: $250k in assets could add over $8k per year to qualifying income.
Example 3: $750,000 in Assets
Scenario: Calculating equivalent income for a larger asset base.
1. Known Value: Eligible Assets = $750,000.
2. Calculation: Annual Income = $750,000 / 30 years.
3. Result: Equivalent Annual Income = $25,000.00.
Conclusion: $750k in assets could be seen as $25k per year for income qualification.
Example 4: $1,000,000 in Assets
Scenario: Calculating equivalent income for a significant asset base.
1. Known Value: Eligible Assets = $1,000,000.
2. Calculation: Annual Income = $1,000,000 / 30 years.
3. Result: Equivalent Annual Income = $33,333.33.
Conclusion: $1M in assets could add over $33k per year to qualifying income.
Example 5: $50,000 in Assets
Scenario: Calculating equivalent income for a smaller asset amount.
1. Known Value: Eligible Assets = $50,000.
2. Calculation: Annual Income = $50,000 / 30 years.
3. Result: Equivalent Annual Income = $1,666.67.
Conclusion: $50k in assets could add about $1.7k per year.
Example 6: $300,000 in Assets
Scenario: Another moderate asset base example.
1. Known Value: Eligible Assets = $300,000.
2. Calculation: Annual Income = $300,000 / 30 years.
3. Result: Equivalent Annual Income = $10,000.00.
Conclusion: $300k in assets translates to $10k per year.
Example 7: $600,000 in Assets
Scenario: Another larger asset base example.
1. Known Value: Eligible Assets = $600,000.
2. Calculation: Annual Income = $600,000 / 30 years.
3. Result: Equivalent Annual Income = $20,000.00.
Conclusion: $600k in assets provides $20k per year in equivalent income.
Example 8: $1,500,000 in Assets
Scenario: A very large asset base.
1. Known Value: Eligible Assets = $1,500,000.
2. Calculation: Annual Income = $1,500,000 / 30 years.
3. Result: Equivalent Annual Income = $50,000.00.
Conclusion: $1.5M in assets yields $50k per year in equivalent income.
Example 9: $80,000 in Assets
Scenario: Another calculation for a mid-range value.
1. Known Value: Eligible Assets = $80,000.
2. Calculation: Annual Income = $80,000 / 30 years.
3. Result: Equivalent Annual Income = $2,666.67.
Conclusion: $80k in assets translates to about $2.7k per year.
Example 10: $420,000 in Assets
Scenario: Final example calculation.
1. Known Value: Eligible Assets = $420,000.
2. Calculation: Annual Income = $420,000 / 30 years.
3. Result: Equivalent Annual Income = $14,000.00.
Conclusion: $420k in assets provides $14k per year.
Frequently Asked Questions about Asset Depletion
1. What is Asset Depletion used for?
It's primarily used by lenders, especially in mortgage applications, to convert a borrower's accumulated assets into an income figure for qualification purposes, supplementing or replacing traditional income checks.
2. Which types of assets are typically eligible?
Commonly eligible assets include cash in checking/savings accounts, stocks, bonds, mutual funds, and sometimes retirement accounts (like 401k or IRA), although rules and the percentage of value used vary significantly by lender and loan type. Always consult with your specific lender.
3. Why is the depletion period often 30 years?
The 30-year period is commonly used for mortgages because it aligns with the standard 30-year mortgage term. It represents the idea that the assets could theoretically provide income over the life of the loan.
4. Do lenders use 100% of the asset value?
Often, no. Many lenders discount the asset value first. For example, they might use only 70% of the value of non-retirement investment accounts to account for potential market fluctuations, taxes, or penalties upon withdrawal. This calculator uses 100% for simplicity based on the basic definition.
5. Can I use retirement accounts (like 401k or IRA) for asset depletion?
Often yes, but rules are typically more complex. Lenders might use a lower percentage (e.g., 60-70%) and may require you to be at least 59.5 years old to access funds without penalty. Rules vary greatly.
6. Is the calculated amount guaranteed income?
No. The calculated figure is a hypothetical "equivalent income" used purely for loan qualification. It doesn't mean you must withdraw that amount from your assets each year, nor does it account for investment growth, taxes, or fees.
7. Does this calculator factor in investment growth?
No, this simple calculator assumes the asset value remains constant and is simply divided over the period. Real-world asset depletion formulas used by lenders typically do not account for future investment growth either, focusing only on the current value.
8. Can I use this for loans other than mortgages?
Asset depletion rules are most standardized for mortgages, but some lenders may use similar concepts for other types of loans. You would need to check with that specific lender.
9. What happens to the assets after depletion?
The term "depletion" is a lending concept, not a requirement to spend your assets. You retain ownership of your assets. The calculation is just a way to assess your financial capacity.
10. Why did Step 1 mention $500,000 / 30?
Step 1 outlined the *most basic* input/output, using a simple division of total asset value by a common depletion period (30 years) as the core calculation example ($500,000 / 30). This calculator implements that basic rule.
