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Mortgage Library: Types of Mortgage Loans: Pledged-Asset Mortgage
|Pledged-Asset Mortgages, also referred to as Asset-Backed, or Asset-Integrated Mortgages, are specially designed for borrowers who have sufficient income to make monthly payments toward a home, but who have all their ready cash tied up in some sort of investments. Pledged-Asset Mortgages allow borrowers to capitalize on
savings without spending them and avoid down payment requirements by pledging their financial assets. Depending upon the lender, you can use almost any type of an investment, including mutual funds or a stock portfolio.
Here's how a Pledged-Asset Mortgage works. You don't make a down payment, but pledge your assets instead. Let's say you want to buy a $100,000 home, and you have $20,000 in stocks, Certificates of Deposit, or any other type of investment. You can either cash in the investment and use that money for the down payment, or you can use the investment as collateral for the loan.
A Pledged-Asset Mortgage generally makes sense for people in a high income tax bracket. This sort of loan is an excellent option if the financial asset you are pledging has a higher expected rate of return than the interest rate on the mortgage, or when the assets you are pledging could cause you capital gains income tax grief if you were to convert them to cash. A Pledged-Asset Mortgage also makes sense for people helping a relative--or an extremely good friend--buy a house. You are still making money on your investments, and the person you are backing has a house.
Benefits of Pledged-Asset Mortgages:
Disadvantages of Pledged-Asset Mortgages:
Fannie Mae's Pledged-Asset Mortgage Products
Fannie Mae's Pledged-Asset Mortgage products enable home buyers to borrow up to 100 percent of the sales price (or appraised value, if less) of a home when there is a pledge of a stable financial asset. Pledged-Asset Mortgages are fixed-rate loans, fully amortizing with terms between 10 and 30 years or adjustable-rate loans (available only when the pledged asset is greater than 10 percent and the borrower is making a contribution of at least 5 percent). Eligible properties are single unit, owner-occupied, primary residences.
Fannie Mae offers the following three Pledged-Asset Mortgage products:
The pledged asset
The pledge may only be given by a parent, grandparent, brother, or sister eligible under the Fannie Mae gift policy or, in the case of the self-pledge, by the borrower. The pledge must be held as a certificate of deposit at a bank, credit union, or other depository. The account may earn interest, and interest may be paid to the borrower.
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