With mortgage rates on the rise, many homebuyers are finding it more difficult to qualify for a mortgage, especially a jumbo loan which often requires higher credit scores and income. One aspect of qualifying that is becoming increasingly important is asset depletion - how much of your liquid assets you need to spend to close on the home.

What is Asset Depletion?

Asset depletion refers to the amount of your liquid assets (such as your checking or savings accounts) that you use to pay for closing costs, down payment, and prepaid items on a home purchase. Many mortgage lenders have guidelines on allowable asset depletion, often ranging from 50-70% of your liquid assets.

Why Asset Depletion Matters for Jumbos

For jumbo mortgages, which are loans above $647,200 in most areas, lenders tend to scrutinize your finances much more closely. They want to ensure your income and assets are sufficient to comfortably afford the larger mortgage payment.

One area they pay close attention to is asset depletion. If your asset depletion is too high, say 80% or more of your liquid assets, lenders may see that as a red flag that you're overextending your finances, even if you qualify based on your debt-to-income ratios.

Tips for Limiting Asset Depletion

If you’re applying for a jumbo loan, keep these tips in mind to avoid excessive asset depletion:

• Shop around for the best mortgage rates. Even small rate differences can save a lot in interest costs over the long run.
• Opt for lower closing costs. You may be able to get lender credits to offset some or all of your closing costs.
• Avoid over improving. Making too many upgrades can inflate your loan amount and drain your assets. Stick to necessary repairs only.
• Make a larger down payment if possible. This can help you qualify for a lower rate and reduce the amount you have to finance.
• Look into down payment assistance programs. These can provide grants or loans to cover some down payment costs.

Carefully considering asset depletion can help you get approved for a jumbo loan while keeping your finances intact. Pay attention to this factor as you navigate the home buying process.