Asset Depletion Mortgage: How to Qualify With Savings Instead of a Paycheck
You have real money in the bank, in a brokerage account or in a retirement plan. What you do not have is a paycheck. Maybe you retired early, sold a business or live off investments. Traditional lenders look for monthly income, so they see you as someone with nothing coming in.
An asset depletion mortgage fixes that mismatch. Ted Erickson, a Novato mortgage broker with 24 years in the business, places these loans for retirees, business sellers and other asset-rich borrowers across California.
What Is an Asset Depletion Mortgage?
An asset depletion mortgage (also called an asset-based, asset dissipation or asset qualifier loan) lets a lender convert your eligible assets into a monthly income figure for qualifying purposes.
You do not have to actually withdraw the money or sell anything. The calculation just shows the lender that your assets could support the payment over time. Your assets are also not pledged as collateral. The home secures the loan, like any other mortgage.
How the Calculation Works
The basic idea is the same everywhere:
Eligible assets, after adjustments ÷ a set number of months = monthly qualifying income
What changes from lender to lender is what counts as eligible, how much of each asset counts, and the number of months used.
The Fannie Mae Version
Fannie Mae allows a version of this using employment-related assets only, such as 401(k), IRA, SEP and Keogh accounts, or a lump-sum retirement or severance distribution. Under Fannie Mae’s method:
- Start with the eligible account balance.
- Subtract any penalty that would apply if the account were fully withdrawn.
- Subtract the funds needed for the down payment, closing costs and required reserves.
- Divide what is left by the loan’s amortization term in months.
For retirement accounts, you must have unrestricted access to withdraw the full balance. Fannie Mae does not count non-employment assets such as inheritances, lawsuit settlements or proceeds from selling real estate under this method.
The Non-QM Version
Non-QM lenders write their own rules, and many are more flexible:
- Broader assets. Checking, savings, money market accounts, CDs, stocks, bonds, mutual funds and retirement accounts may all count.
- Haircuts by asset type. Cash often counts in full. Stocks, bonds and retirement accounts are often counted at a reduced share to allow for market swings and taxes.
- Shorter divisors. Many non-QM lenders divide by fewer months than a conventional loan, which produces more qualifying income from the same assets.
The differences between lenders can be big. The same portfolio might qualify you for a much larger loan with one lender than another.
Asset Depletion: Fannie Mae vs Non-QM
| Factor | Fannie Mae (employment-related assets) | Non-QM asset depletion |
|---|---|---|
| Eligible assets | Retirement accounts and lump-sum retirement or severance distributions | Cash, investments and retirement accounts, depending on lender |
| Inheritance or sale proceeds | Not eligible | Often eligible if liquid and documented |
| Asset haircuts | Withdrawal penalty and funds to close are subtracted | Varies by asset type and lender |
| Divisor | Loan’s amortization term in months | Lender-set, often shorter |
| Can combine with other income | Yes | Usually yes |
| Pricing | Generally lower | Generally higher |
| Property types | Principal residence and second home | Varies by lender |
Who an Asset Depletion Mortgage Fits
- Retirees with savings and retirement accounts but modest Social Security or pension income
- Business owners who recently sold and have proceeds but no ongoing salary
- Heirs who received a significant inheritance
- Investors living off portfolio growth
- Early retirees and people between careers
- Self-employed borrowers who want to combine assets with partial income
What Lenders Look At Besides Assets
- Credit history. Credit still matters.
- Seasoning. Lenders want to see assets in your accounts for a period of time, with a paper trail.
- Liquidity. Real estate, art, collectibles and business equity usually do not count. The assets need to be accessible.
- Reserves. Assets used for the down payment and reserves generally cannot also be counted as income.
- Other debts. Your new qualifying income goes into a standard debt-to-income calculation.
Asset Depletion and California Retirees
Marin and Sonoma County have a large population of retirees and people downsizing from long-held homes. A common scenario: a retired couple sells a house they have owned for decades, has substantial savings and retirement accounts, and wants to buy a smaller home without draining their cash. On paper their income is low. With asset depletion, their savings can tell the real story.
Proposition 19 may also let eligible homeowners 55 and older transfer their property tax base to a replacement home in California, which can make a move more affordable. Talk to your tax advisor about whether it applies.
Things to Watch
- Don’t drain your accounts to buy. Every dollar you put down reduces the assets available for qualifying.
- Account for taxes. Withdrawals from pre-tax retirement accounts are taxable, which is why lenders discount them.
- Market swings. If your portfolio drops before closing, your qualifying income drops too.
- Compare programs. A conventional loan with combined Social Security, pension and asset income may cost less than a non-QM loan. Ted checks both.
Asset depletion is one of several non-QM options. Compare it with bank statement loans and DSCR loans, and if another lender said no, see Ted’s second look page. Self-employed? Compare every route on Ted’s self-employed mortgage page.
Asset Depletion Loan Questions
Talk to Ted
Retired or living off savings? Ted will run your assets through several lenders’ methods and show you what qualifies.
Then he shops the loan. Asset depletion lenders set their own guidelines and price the same loan very differently, so once Ted knows which lenders will approve you, he compares their pricing and terms side by side to find the strongest offer.
Call or text Ted at (415) 717-0477, or get your options online.
Sources
- Fannie Mae Selling Guide: employment-related assets as qualifying income
- California State Board of Equalization: Proposition 19
Ted Erickson (Theodore Emery Erickson), NMLS #223442. Barrett Financial Group, L.L.C., NMLS #181106, 3207 Grey Hawk Court, Suite 110, Carlsbad, CA 92010. CA 60DBO-46052 and 41DBO-148702, licensed by the Dept. of Financial Protection and Innovation under the California Residential Mortgage Lending Act. Equal Housing Opportunity. Not all borrowers will qualify. This article is general information, not tax advice or a commitment to lend.
