Asset Depletion Mortgage Qualification: Income, Assets, and Limits

Asset depletion mortgage qualification lets you get approved by turning your liquid assets into a calculated monthly income, even with no paycheck coming in. Under Fannie Mae’s conventional program, the lender takes your eligible assets, subtracts penalties and the cash you’ll spend at closing, and divides what’s left by the loan term in months. That figure becomes your qualifying income and slots into the same debt-to-income ratio any other borrower would face. The maximum loan-to-value is 70% for most borrowers, or 80% if you’re at least 62 at closing, so plan on a larger down payment than a standard mortgage.¹

How the Income Is Calculated

The formula has four moving parts. Start with your eligible assets. Subtract any early withdrawal penalties that would apply if you distributed everything today. Subtract the funds earmarked for down payment, closing costs, and required reserves. What remains is your net documented assets, which the lender divides by the amortization term of the loan in months.¹

A Worked Example

Say you have a $500,000 IRA, you’re under 59½, and a 10% early distribution penalty applies. The lender starts at $500,000, subtracts the $50,000 penalty, and lands at $450,000 in eligible documented assets. From that, subtract $100,000 for down payment, closing costs, and reserves. Net documented assets: $350,000. Divide by 360 months for a 30-year loan, and your qualifying income is roughly $972 per month.¹

Now age 62 with no penalty. The same $500,000 IRA minus $100,000 in closing-related costs leaves $400,000. Divide by 360 and you get about $1,111 per month. Add a $2,000 Social Security check and the underwriter sees $3,111 in monthly qualifying income.

Why a Bigger Down Payment Can Hurt You

The down payment gets subtracted from the pool before the division happens. So a larger down payment lowers your qualifying income, not just your loan balance. You’re drawing from the same well twice, once to buy the house and once to prove you can pay for it. That tension is the single most important thing to plan around before you apply.

Which Assets Actually Count

Fannie Mae calls this program “Employment-Related Assets as Qualifying Income,” and the name is a warning. The eligibility list is narrow, and a lot of wealth doesn’t fit.

Assets That Qualify

Retirement accounts, including 401(k), traditional IRA, SEP-IRA, and Keogh plans, as long as you have unrestricted access to request a full distribution. What the account holds inside — stocks, bonds, mutual funds — doesn’t matter; the account type does.¹
A lump sum severance from a former employer, documented with a distribution letter and deposited into a verified account.
A one-time lump sum retirement distribution, documented with Form 1099-R and deposited into a verified account.

Assets That Don’t

Checking and savings accounts generally don’t count under the conventional program, unless the money in them came from an eligible employment-related source such as a deposited severance. Stock options, non-vested restricted stock, lottery winnings, inheritance, divorce proceeds, real estate sale proceeds, and virtual currency are all excluded.¹

If most of your wealth sits in ordinary brokerage or bank accounts, the conventional program probably won’t work. A non-QM lender with broader eligibility is likely the better path.

The 59½ Question

You do not have to be 59½ to use retirement accounts. Fannie Mae asks whether you have the legal right to request a full distribution, not whether penalties apply. If you’re younger and the account allows withdrawal, the lender subtracts the 10% early distribution penalty from your qualifying balance and runs the same calculation.² Access is the real hurdle with 401(k) plans: if you’re still working for the sponsoring employer and the plan bars in-service withdrawals, the account may not qualify at all.

Cryptocurrency

Virtual currency can fund your down payment, closing costs, and reserves, but only after it’s been converted to U.S. dollars and deposited at a regulated financial institution. It cannot be used as an employment-related asset for the income calculation.³

Loan Limits That Shape What You Can Buy

The conventional program comes with tight guardrails that catch people off guard.

Maximum LTV is 70% for most borrowers, so plan on at least 30% down. Borrowers who are at least 62 at closing get up to 80% LTV (20% down). When the assets are jointly owned, every owner has to be a borrower on the loan, and the person qualifying with those assets must be at least 62.¹
Only primary residences and second homes are eligible. Investment properties are not.¹
Only purchases and limited cash-out refinances qualify. A full cash-out refinance is not available.¹

On a $600,000 home, the 30% down payment is $180,000. That same $180,000 comes out of your qualifying asset pool before the income calculation runs, so the effective cost of entry is high and the loan you can support is smaller than the raw account balances suggest.

When a Non-QM Program Fits Better

Non-qualified mortgage lenders run their own asset depletion programs with looser rules, because they hold the risk instead of selling to Fannie Mae. The tradeoff is price: rates typically run 0.5% to 2% above conventional, and credit standards can be stricter.

The flexibility shows up in three places. First, the asset list is broader — brokerage accounts, bank deposits, money market funds, and CDs often count, not just employment-related accounts. Second, some lenders discount volatile assets by a percentage (often 70%) rather than subtracting a specific penalty. Third, and most consequential, some programs divide by a much shorter number of months. Eighty-four is common.

Watch what that divisor does. With $700,000 in net qualifying assets under the Fannie Mae formula, dividing by 360 produces about $1,944 per month. Divide the same $700,000 by 84, and you get roughly $8,333. That gap can turn a denial into an approval, but you pay for it in the rate.

Common non-QM features include minimum asset thresholds around $1,000,000 or 125% of the loan amount, minimum credit scores near 700, at least 20% down, and DTI ratios stretched as high as 55%. Some programs limit you to owner-occupied primary residences and bar cash-out refinancing. Terms vary widely from one lender to the next, so pulling term sheets from more than one non-QM originator is worth the time.

What You’ll Need to Document

Expect a heavier paperwork load than a standard mortgage. You’re proving a paycheck exists inside your account balances, and the underwriter wants to see it from several angles.

For each account you’re using, the lender needs the most recent monthly, quarterly, or annual statement, showing account type, institution, current balance, and what’s held inside. Fannie Mae files must meet the Selling Guide’s rules on the allowable age of credit documents.¹ Non-QM lenders typically want 60 to 90 days of seasoning, meaning the money has to have sat in the account that long before you apply.

Severance and lump sum retirement distributions require the employer’s distribution letter or a Form 1099-R plus proof the funds landed in a verified account. For retirement accounts, the lender confirms unrestricted withdrawal rights. If you’re still employed by the plan sponsor and can’t take an in-service distribution, that account won’t count no matter how large it is.

Gift funds are allowed for down payment, closing costs, or reserves with a signed gift letter that names the donor, states the amount, confirms no repayment is expected, and documents the donor’s relationship to you. The lender verifies the funds are either sitting in the donor’s account or already transferred to yours. Fannie Mae imposes no mandatory seasoning period on gifted funds.⁴ Note that gift funds used at closing come out of your qualifying pool like any other closing cost, so they help you fund the purchase but shrink your calculated income.

All of this flows into the Uniform Residential Loan Application (Form 1003), where each institution, account type, and current market value gets listed in the Assets section.⁵ The numbers you report become the starting point for the underwriter’s math. Mismatches between the application and your statements slow the file down and can sink it.

Rates, Down Payment Drag, and What You Actually Afford

Even inside the Fannie Mae program, asset depletion loans tend to price slightly above a fully income-documented mortgage at the same LTV, because the risk profile is different. Non-QM programs run higher still: 0.5% to 2% above conventional, depending on credit, LTV, and the lender’s appetite.

The bigger cost is the down payment itself. Locking up 30% of the purchase price (or 20% at age 62+) leaves less liquidity after closing, and because that same money leaves your qualifying pool, borrowers routinely find they can afford less house than the raw balances would suggest. Running the full calculation before you shop for property is the way to avoid wasted time.

You Aren’t Being Told to Sell

Asset depletion is a paper exercise for underwriting. Your investments stay invested, your retirement accounts stay intact, and nothing about the mortgage application itself triggers a liquidation. The lender verifies the assets exist and that you can reach them, then does the math.

If you do choose to liquidate to cover the down payment, the tax consequences are real. Selling appreciated investments triggers capital gains tax, and pulling from a retirement account before 59½ means a 10% early withdrawal penalty on top of ordinary income tax.² The Fannie Mae formula already accounts for the penalty inside the income math, but the actual tax bill still lands on you when you withdraw.

1
Fannie Mae Selling Guide. Employment Related Assets as Qualifying Income
2
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
3
Fannie Mae Selling Guide. Virtual Currency
4
Fannie Mae Selling Guide. Personal Gifts
5
Fannie Mae. Uniform Residential Loan Application