Which statement best describes an asset-depletion loan?

• A. Income is verified using traditional income documentation.
• B. Monthly payments are derived from available assets rather than current income.
• C. The borrower provides bank statements for income verification.
• D. Repayment is based on the appraised value of assets only.

Answer: (B)

Asset-depletion loans determine monthly payments by depleting assets rather than relying on current income. Lenders use the borrower’s liquid assets (like cash, investments) and apply a depletion rate to estimate the payment, effectively converting those assets into a notional ongoing payment. This approach lets someone with substantial assets but limited or nontraditional income qualify for a loan.

For example, with $1 million in liquid assets and a depletion rate of 4% per year, the estimated annual payment would be $40,000, or about $3,333 per month. The key idea is that the payment comes from assets, not from the borrower’s salary or typical income documentation.

The other statements don’t fit because traditional income documentation is used for standard qualification, bank statements for income verification describe bank-statement or alternative income methods, and basing repayment solely on the appraised value of assets misconstrues how asset-depletion calculations work (they rely on asset balances and a depletion rate, not a simple appraised value).