When Assets Replace Income for Mortgage Qualification
Some borrowers have substantial assets but limited traditional income. Think of a retiree with a large 401(k) but no salary, or someone who sold their business and now lives off the proceeds. Fannie Mae allows lenders to qualify these borrowers based on their assets rather than employment income.
The concept is straightforward: if you have enough money to make mortgage payments for 20 years, you can qualify for the loan. The lender calculates this by dividing your eligible assets by 240 months (20 years) to determine your monthly qualifying amount.
Say you have $600,000 in eligible assets after subtracting your down payment and closing costs. The lender divides this by 240, giving you $2,500 per month in qualifying income. This amount gets plugged into your debt-to-income ratio calculation just like a salary would.
Loan Requirements and Restrictions
This asset-based qualification only works for specific loan types. Your mortgage must be for a primary residence or second home — investment properties don't qualify. The property can be a single-family home or duplex, but not a larger multi-unit building.
You're limited to purchase loans, no-cash-out refinances, or Freddie Mac Enhanced Relief Refinance mortgages. Cash-out refinances don't qualify because they reduce your available assets.
The loan-to-value ratio cannot exceed 80% in most cases. If you're buying a $500,000 home, you need at least $100,000 for the down payment. This requirement ensures you have substantial equity from day one.
Age Requirement and Ownership Rules
At least one borrower must be 62 years old or older. This age requirement reflects the typical retirement scenario where someone has accumulated assets but reduced income.
All asset owners must be borrowers on the mortgage or owners of the property. You cannot use your adult child's investment account to qualify, even if they're willing to help with payments. Joint accounts work only if all account holders are on the loan.
Types of Qualifying Assets
Retirement accounts form the backbone of most asset-based qualifications. Your 401(k), IRA, or other IRS-recognized retirement accounts count as long as you can access the funds without penalties. You must be fully vested in the account and the sole owner.
The key requirement is penalty-free access. If you're under 59½ and would face early withdrawal penalties, those retirement funds don't qualify. However, if you're over 59½ or have a qualifying hardship exception, the full account balance counts.
Regular bank accounts and investment accounts also qualify. Checking accounts, savings accounts, money market accounts, and brokerage accounts all work. The funds must be in U.S. dollars at a regulated financial institution.
Proceeds from selling your business can qualify if you meet specific requirements. You must have sold the entire business — no retained ownership, assets, or seller financing. The sale proceeds must be sitting in a regular account, immediately accessible.
What Doesn't Count
Several asset types are explicitly excluded. Cryptocurrency cannot be used, regardless of its value or how long you've held it. Gift funds don't count — the money must be yours, not from family members helping with the purchase.
Borrowed funds are also excluded. If you took a loan against your 401(k) or have a margin loan against your investment account, those borrowed amounts reduce your eligible assets.
Any assets pledged as collateral for other loans don't count. If your investment account secures a business loan, those funds aren't available for mortgage qualification.
Required Documentation
The documentation requirements vary based on asset type but are generally extensive. For retirement accounts, you need the most recent account statement plus documentation proving you can access the funds without penalties.
Bank and investment accounts require one month of statements for streamlined processing or two months for standard documentation. If you don't receive regular statements for securities, you need proof of ownership and current market values from financial publications.
Large deposits require explanation. Any deposit exceeding 10% of your total eligible assets must be documented to prove it's not a gift or borrowed money. Direct payroll deposits or transfers from documented accounts usually satisfy this requirement.
Business sale proceeds require the most documentation: three months of account statements, the fully executed sale agreement, the sales contract, and your most recent business tax return before the sale.
The Asset Calculation Process
The lender follows a specific three-step calculation. First, they total all your eligible documented assets. Second, they subtract your down payment, closing costs, any gift funds, borrowed funds, and pledged assets. The remainder is your "net eligible assets."
Finally, they divide the net eligible assets by 240 to get your qualifying monthly amount. This 240-month period represents 20 years of payments, providing a substantial safety margin for the lender.
Consider this example: You have $800,000 in retirement accounts and $200,000 in savings, totaling $1 million. You're buying a $600,000 home with $120,000 down and $15,000 in closing costs. Your net eligible assets are $865,000 ($1 million minus $135,000 in transaction costs). Divided by 240, this gives you $3,604 per month in qualifying income.
Common Complications
Asset-based qualification can get tricky with joint accounts. If you're married but only one spouse is on the mortgage, jointly-held assets may not qualify unless both spouses are borrowers.
Timing matters for business sales and lump-sum distributions. The funds must be seasoned in your account and fully accessible. Recent large deposits trigger additional documentation requirements that can delay closing.
Market volatility affects investment accounts. The lender uses the account value as of the application date, but significant market declines before closing could jeopardize your qualification. Some lenders require updated statements closer to closing.
Tax implications often surprise borrowers. While the lender doesn't require you to actually withdraw the assets, accessing retirement funds for payments will trigger income taxes and potentially affect your tax bracket in future years.
References
For the official guidelines, see 5307.1: Assets as a basis for repayment of obligations in the Fannie Mae Selling Guide.
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Original Freddie Mac Guideline Text
This section contains information related to:
Mortgage eligibility requirements
Asset calculation method for establishing the debt payment-to-income (DTI) ratio
Asset eligibility and documentation requirements
Special delivery requirements
Assets that will be used by the Borrower for the repayment of their monthly obligations may be used to qualify the Borrower for the Mortgage, provided that, regardless of the underwriting path of the Mortgage, the requirements of this section and
Section 5301.2
are met.
Form 65, Uniform Residential Loan Application
, should include information pertaining to the Borrower's employment and income, even if the Borrower qualifies for the Mortgage solely based on assets.
(a)
Mortgage eligibility requirements
The assets described in this Section 5307.1 may only be used to qualify the Borrower if the Mortgage meets all of the following requirements:
The Mortgage is secured by a 1- or 2-unit Primary Residence or a second home
The Mortgage is either a purchase transaction Mortgage, "no cash-out" refinance Mortgage or Freddie Mac Enhanced Relief Refinance
®
Mortgage
The Mortgage has a maximum loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit (HELOC) TLTV (HTLTV) ratio of 80%, unless the Mortgage is a Freddie Mac Enhanced Relief Refinance Mortgage, in which case the maximum ratios in
Section 4304.3
apply
(b)
Asset calculation method for establishing the DTI ratio
To determine the qualifying asset amount used to establish the DTI ratio, the following asset calculation method must be used:
Step 1
Determine the total eligible documented asset amount.
Step 2
Subtract all of the following from the total eligible documented assets:
Any funds required to be paid by the Borrower to complete the transaction (e.g., Down Payment and Closing Costs),
Any gift funds and borrowed funds
Any portion of assets pledged as collateral for a loan or otherwise encumbered
Net eligible assets:
The resulting figure is the “net eligible assets.”
Step 3
Divide the “net eligible assets” by 240.
Qualifying asset amount:
The resulting figure is the “qualifying asset amount” used to establish the DTI ratio.
(c)
Asset eligibility and documentation requirements
The assets described below may be used to qualify the Borrower for the Mortgage, provided that the assets meet the following requirements:
(i)
Retirement assets
The following table contains eligibility, documentation and calculation requirements for retirement accounts:
Topic
Stable monthly asset qualification requirements
Asset eligibility
The retirement assets must be in a retirement account recognized by the Internal Revenue Service (IRS) (e.g., 401(k), IRA)
Borrower must be the sole owner
The asset must not currently be used as a source of income by the Borrower
As of the Note Date, the Borrower must have access to withdraw the funds in their entirety, less any portion pledged as collateral for a loan or otherwise encumbered, without being subject to a penalty or an additional early distribution tax
The Borrower’s rights to the funds in the account must be fully vested
Cryptocurrency may not be considered in the calculation of net eligible assets for establishing the DTI ratio described in
Documentation
Streamlined Accept and Standard Documentation:
Most recent retirement asset account statement
Documentation evidencing asset eligibility requirements are met
Section 5307.1(b)
above.
(ii)
Lump-sum distribution funds not deposited into an eligible retirement asset
The following table contains eligibility, documentation and calculation requirements for lump-sum distribution funds not deposited into an eligible retirement asset:
Lump-sum distribution funds not deposited into an eligible retirement asset
Topic
Stable monthly asset qualification requirements
Asset eligibility
If the lump-sum distribution funds have been deposited into an eligible retirement asset, follow the requirements for retirement assets described in the table above.
If the lump-sum distribution funds have been deposited into a depository or non-retirement securities account, the requirements in this table apply.
Lump-sum distribution funds must be derived from a retirement account recognized by the IRS (e.g., 401(k), IRA) and must be deposited into a depository or non-retirement securities account
A Borrower must have been the recipient of the lump-sum distribution funds
Parties not obligated on the Mortgage may not have an ownership interest in the account that holds the funds from the lump-sum distribution
The proceeds from the lump-sum distribution must be immediately accessible in their entirety
The proceeds from the lump-sum distribution must not have been or currently be subject to a penalty or early distribution tax
Documentation
Streamlined Accept and Standard Documentation:
Employer distribution letter(s) and/or check-stub(s) evidencing receipt and type of lump-sum distribution funds; IRS 1099-R (if it has been received)
Satisfactorily documented evidence of the following:
Funds verified in the non-retirement account and used for qualification must have been derived from eligible retirement assets
Lump-sum distribution funds must not have been or currently be subject to a penalty or early distribution tax
Calculation
Refer to the asset calculation method in
Section 5307.1(b)
above.
(iii)
Depository accounts and securities (as described in
)
The following table contains eligibility, documentation and calculation requirements for depository accounts and securities:
Depository accounts and securities (as described in
)
Topic
Stable monthly asset qualification requirements
Asset eligibility
The Borrower must solely own assets or, if the asset is owned jointly, each asset owner must be a Borrower on the Mortgage and/or on the title to the subject property
At least one Borrower who is an account owner must be at least 62 years old
As of the Note Date, the Borrower must have access to withdraw the funds in their entirety, less any portion pledged as collateral for a loan or otherwise encumbered, without being subject to a penalty
Account funds must be located in a U.S.- or State-regulated financial institution and verified in U.S. dollars
Cryptocurrency may not be considered in the calculation of net eligible assets for establishing the DTI ratio described in
Streamlined Accept Documentation:
Provide an account statement covering a one-month period or a direct account verification (i.e., verification of deposit (VOD))
For securities: If the Borrower does not receive a stock/security account statement:
Provide evidence the security is owned by the Borrower, and
Verify value using stock prices from a financial publication or website
Standard Documentation:
Provide account statement(s) covering a two-month period or a direct account verification (i.e., VOD)
For securities: If the Borrower does not receive a stock/security account statement:
Provide evidence the security is owned by the Borrower, and
Verify value using stock prices from a financial publication or website
In addition to the documentation requirements above, the following requirements apply to
all
Mortgages:
Documentation evidencing asset eligibility requirements are met
Sourcing deposits:
The Seller must document the source of funds for any deposit exceeding 10% of the Borrower’s total eligible assets in depository accounts and securities and verify the deposit does not include gifts or borrowed funds or reduce the eligible assets used to qualify the Borrower by the amount of the deposit
When the source of funds can be clearly identified from the deposit information on the account statement (e.g., direct payroll deposits) or other documented income or asset source in the Mortgage file, the Seller is not required to obtain additional documentation
Calculation
Refer to the asset calculation method in
Section 5307.1(b)
above
(iv)
Assets from the sale of the Borrower’s business
The following table contains eligibility, documentation and calculation requirements for assets from the sale of the Borrower’s business:
Assets from the sale of the Borrower’s business
Topic
Stable monthly asset qualification requirements
Asset eligibility
The Borrower(s) must be the sole owner(s) of the proceeds from the sale of the business that were deposited to the depository or non-retirement securities account
Parties not obligated on the Mortgage may not have an ownership interest in the account that holds the proceeds from the sale of the Borrower’s business
The proceeds from the sale of the business must be immediately accessible in their entirety
The sale of the business must not have resulted in the following: retention of business assets, existing secured or unsecured debt, ownership interest or seller-held notes to buyer of business
Documentation
Streamlined Accept and Standard Documentation:
Most recent three months’ depository or securities account statements
Fully executed closing documents evidencing final sale of business to include sales price and net proceeds
Contract for sale of business
Most recent business tax return prior to sale of business
Satisfactorily documented evidence that the funds verified in the non-retirement account and used for qualification were derived from the sale of the Borrower’s business
Calculation
Refer to the asset calculation method in
Section 5307.1(b)
above
(d)
Special delivery requirements
The Seller must deliver the ULDD Data Point
Investor Feature Identifier
valid value “H31” for Mortgages using assets as a basis for repayment of obligations.
Section 6302.33
for special delivery requirements.
