Yes, you can use investment income to qualify for a mortgage. Conventional lenders following Fannie Mae’s rules will count interest, dividends, capital gains, trust distributions, annuity payments, and vested restricted stock toward your qualifying income, provided you can show a two-year track record and reasonable assurance the money will keep coming. If your portfolio holds plenty of value but pays out little, a separate method called asset depletion lets you convert the balance itself into a monthly income figure.
What Kinds of Investment Income Count
Interest and dividends are the easiest. Both arrive on a predictable schedule, so underwriters treat them much like wages. Interest comes from savings accounts, CDs, and bonds; dividends come from stocks and mutual funds.
Capital gains from selling stocks, mutual fund shares, or other securities also qualify, but they get more scrutiny because they depend on you actively selling. You need a two-year history of realized gains and evidence that your portfolio is still large enough to generate future sales. One helpful point: capital losses on Schedule D do not count against you in the income calculation.1Fannie Mae. Capital Gains Income
Trust income qualifies on a split rule. Fixed payments only need the trust to have been in place for 12 months. Variable payments need a 24-month history documented through personal or trust tax returns.2Fannie Mae. Trust Income Annuity payments work similarly: because they arrive on a set schedule for a defined period, underwriters treat them much like a pension, and you’ll need the contract terms plus proof the payments will continue long enough.
Restricted stock units (RSUs) count once vested and distributed without restrictions. Time-based awards need at least 12 months of vesting history from your current employer; performance-based awards generally need 24 months, though 12 can be acceptable with strong offsetting factors.3Fannie Mae. Restricted Stock Units and Restricted Stock Employment Income Sign-on bonuses paid as restricted stock that vest over time do not count, regardless of the amount.
The History and Continuity Rule
Across all these income types, lenders want to see a pattern rather than a one-time windfall. For interest, dividends, and capital gains, that generally means two years of federal tax returns showing the income.4Fannie Mae. Interest and Dividend Income>
Looking forward, underwriters also need reasonable assurance the income will continue for at least three years after closing. They’ll study the size and composition of your portfolio to judge whether the underlying assets can sustain the stream without being depleted. A portfolio heavily concentrated in a single stock or a niche sector tends to draw questions about sustainability.
How Lenders Calculate the Number
The math depends on whether your investment income has been steady, growing, or shrinking. For capital gains, the rule is explicit: if the trend is stable or increasing, the lender averages the two most recent tax returns. If the trend is declining, the lender uses only the most recent year, which produces the lower figure.1Fannie Mae. Capital Gains Income Interest and dividend income follows a similar two-year averaging approach.
This is where borrowers get tripped up. If you had one great year and one quiet year, the underwriter can’t cherry-pick the good one. And if last year was significantly lower than the year before, you’re stuck with last year’s number. A consistent two-year pattern matters far more than one outstanding year.
Grossing Up Tax-Exempt Income
If part of your investment income is tax-exempt, such as interest from municipal bonds, you get a useful boost. Lenders can add 25 percent to nontaxable income before calculating your debt-to-income ratio.5Fannie Mae. General Income Information If your actual tax bracket would justify more, the lender can use a higher percentage.
In practice, $4,000 a month of tax-free municipal bond interest could count as $5,000 for qualification purposes. That difference alone can push you past a DTI threshold. Many applicants don’t realize the adjustment is available until their loan officer raises it.
Asset Depletion: Qualifying With Wealth Instead of Yield
Asset depletion is a different approach, and it’s the one that catches the attention of retirees and wealthy borrowers whose portfolios lean toward growth rather than income. Instead of looking at what your investments pay out, the lender takes your total eligible assets and converts them into a theoretical monthly income by dividing by the loan’s amortization term.
The formula: eligible assets, minus any early withdrawal penalties, minus the funds you’re using for down payment, closing costs, and required reserves, divided by the number of months in the loan term.6Fannie Mae. Employment Related Assets as Qualifying Income On a 30-year mortgage, the divisor is 360. So $500,000 in qualifying assets, minus a 10 percent early withdrawal penalty of $50,000 and $50,000 for closing costs and reserves, yields about $1,111 per month ($400,000 divided by 360).
Which Assets Qualify
The eligible categories are narrower than most borrowers expect:
- 401(k), IRA, SEP, and Keogh accounts, if you have unrestricted access to the funds. If you can’t take a full distribution without employer approval, they don’t count.
- Severance and lump-sum retirement packages, as long as they come from non-self-employment.
- Liquidated employment assets placed in a trust, if transferred within 12 months of application.
What doesn’t qualify is a longer list: stock options, non-vested restricted stock, lawsuit proceeds, lottery winnings, real estate sale proceeds, inheritance, and divorce settlements are all excluded. Virtual currency is explicitly ineligible. Checking and savings accounts generally don’t count either, unless the funds originated from an eligible source like a severance package.6Fannie Mae. Employment Related Assets as Qualifying Income
Age Rules for Retirement Accounts
If you’re using retirement accounts for asset depletion and you’re under 59½, the lender must subtract the 10 percent federal early withdrawal penalty from the asset total before running the calculation.7Internal Revenue Service. Topic No. 558, Additional Tax on Early Distributions From Retirement Plans Other Than IRAs If you’re over 59½, no penalty haircut applies.
Age also governs loan size. If the borrower using asset depletion income is at least 62, the maximum loan-to-value ratio is 80 percent. Borrowers younger than 62 who rely on this method face tighter LTV limits.6Fannie Mae. Employment Related Assets as Qualifying Income
Documents to Gather
Plan to hand over two years of signed federal tax returns, including Form 1040 and the relevant schedules. Schedule B breaks down the sources of interest and dividend income; Schedule D details capital gains and losses from asset sales.
You’ll also need the IRS forms that report your investment income independently. Form 1099-INT covers interest from banks and bond issuers.8Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID Form 1099-DIV reports dividends and capital gains distributions from funds. Form 1099-B details proceeds and cost basis from securities sales. Underwriters cross-check these against your return to make sure everything matches.
Then come the account statements. For a purchase, Fannie Mae requires statements covering the most recent two months of activity. For a refinance, one month is enough. If your accounts report quarterly, the most recent quarterly statement works for either.9Fannie Mae. Verification of Deposits and Assets The statements must identify you as the account holder, show the account number, and include the ending balance.
Trust income requires more. You may need a copy of the trust agreement, a trustee’s statement, the trust’s own tax returns, or a letter from an accountant or attorney who has reviewed the documents.2Fannie Mae. Trust Income The lender also needs to confirm receipt of at least one month of payments through bank statements or similar records.
How It Fits Into Your DTI
All of this feeds into the debt-to-income ratio that determines how much you can borrow. For conventional loans underwritten manually, the standard DTI ceiling is 36 percent, stretching to 45 percent with strong compensating factors like high credit scores and significant reserves. Loans run through Fannie Mae’s automated Desktop Underwriter can be approved with DTI as high as 50 percent.10Fannie Mae. Debt-to-Income Ratios
Investment income and asset depletion income both land on the income side of that ratio. If you have a salary plus investment income, they combine. That is often the best scenario: a moderate wage topped up by dividend and interest income that pushes total qualifying income past the DTI target. You don’t have to rely on investment income exclusively unless you have no employment income at all.
When Conventional Rules Don’t Fit
FHA loans allow investment income with similar documentation: two years of tax returns, the most recent account statement, and verification of the frequency, duration, and amount of each distribution. Any assets you’re using for down payment or closing costs get subtracted before the income calculation.
For borrowers who don’t fit neatly into either conventional or FHA guidelines, non-QM (non-qualified mortgage) loans offer more flexibility. Bank statement programs let you qualify using 12 to 24 months of bank statements instead of tax returns, which helps when returns show heavy deductions or reinvestment that depresses reported income. Asset-based non-QM programs may apply more generous formulas than Fannie Mae’s employment-related asset rules allow. The tradeoff is a higher interest rate and often a larger down payment.
Mistakes That Sink Investment-Income Applications
The most frequent problem is inconsistency between documents. If your 1099-DIV shows $40,000 in dividends but your tax return reports $35,000 because you netted out reinvested dividends or made some other adjustment, the underwriter will flag it. Every number needs to reconcile across your 1099 forms, tax returns, and brokerage statements.
Another misstep is assuming unrealized gains count. A portfolio worth $2 million that generates only $15,000 a year in dividends qualifies based on that $15,000, not the $2 million, unless you use asset depletion. And asset depletion has its own eligibility limits. Borrowers who hold most of their wealth in real estate, private equity, or cryptocurrency often discover those assets don’t qualify under conventional guidelines at all.
Timing matters too. A major portfolio rebalancing right before or during your application creates documentation headaches. Large transfers between accounts, sudden liquidation of positions, or new large deposits all trigger additional verification. The smoothest applications come from borrowers whose accounts have looked roughly the same for the two years leading up to the application.