Asset Depletion Loans Explained: Qualifying With Savings and Investments

An asset depletion loan, also called asset utilization, lets you qualify for a mortgage using your savings and investments instead of a paycheck. Asset depletion programs divide eligible assets by a number of months the program sets to create a qualifying income figure, which the lender then weighs against your housing payment and other debts. It often comes up for retirees, people living off investments and business owners with uneven income, and it is subject to credit approval like any other loan.

Who asset depletion tends to fit

This approach is built for people whose wealth sits in accounts rather than in a steady paycheck. It may fit you if:

• You are retired or semi-retired and have not started regular withdrawals.
• You sold a business or property and hold the proceeds in cash or investments.
• You are self-employed with substantial savings but income that rises and falls.
• You live mainly on investment returns that do not show up as wages.
• Your tax returns show modest income compared with what you have saved.

Some programs let you combine asset-based income with other income, such as a pension, Social Security or part-time earnings, which can help when no single source covers the payment on its own.

How the calculation works, in words

Every program has its own formula, but the steps generally look like this:

1. Identify eligible assets. Checking, savings, money market, certificates of deposit, brokerage accounts and often retirement accounts.
2. Adjust for access and market risk. Cash usually counts in full. Stocks, bonds and funds may be discounted because their value moves. Retirement accounts may be reduced further for taxes and early-withdrawal penalties if you cannot yet take penalty-free withdrawals.
3. Set aside what the purchase needs. Your down payment, closing costs and any required reserves usually come out first.
4. Divide by the program's number of months. The result is a monthly income figure that sits alongside any other income you document.

Because the discounts and the divisor differ by program, the same balances can produce different qualifying income at different lenders. That is a good reason to have a licensed loan officer run your numbers against more than one program. How withdrawals from retirement accounts would be taxed in your situation is a separate question, so talk to a tax professional.

What usually counts and what usually does not

Lenders commonly count:

• Personal checking, savings and money market balances.
• Certificates of deposit.
• Stocks, bonds and mutual funds held in brokerage accounts, often at a discount.
• Vested retirement account balances, often at a deeper discount.

Lenders commonly exclude or limit:

• Equity in the home you are buying or in other real estate.
• Assets you do not fully own or cannot access, such as unvested stock.
• Business accounts, unless the program allows them and you can show using the funds will not hurt the business.
• Funds whose source cannot be documented.
• Assets with values that are hard to verify, which programs treat very differently.

Fannie Mae and Freddie Mac asset depletion guidelines, in general terms

Many people search for Fannie Mae or Freddie Mac asset depletion guidelines. Both agencies address assets as a source of repayment, but in narrower and more specific ways than many non-QM asset programs.

Fannie Mae's Selling Guide covers employment-related assets as qualifying income within its rules for other sources of income. Freddie Mac's guide has a section on assets as a basis for repayment of obligations. Each agency sets its own conditions on which assets qualify, how they must be documented and how the income figure is calculated, and those details can change. A licensed loan officer can tell you whether an agency loan fits your situation before you look further.

Non-QM asset depletion programs are written by private investors, not the agencies. They may accept a wider mix of assets or combine asset income with other income in different ways. They also price differently: non-QM loans often price higher than agency loans because they carry more risk for the investor.

Ability-to-Repay still applies

The CFPB's Ability-to-Repay rule lists your current or reasonably expected income or assets, other than the value of the home securing the loan, among the factors a lender must consider. That is why qualifying on assets is allowed at all. The lender still has to verify those assets with reliable records, such as account statements, and make a reasonable, good-faith determination that you can afford the loan. Non-QM loans are not held to the Qualified Mortgage rules, but that determination is still required.

Documents lenders commonly ask for

• Recent statements for every account you want counted, covering the period the program sets.
• Terms of withdrawal for retirement accounts, showing you can access the funds.
• Proof of ownership for each account.
• Explanations and paper trails for large deposits.
• Documentation for any other income you are combining, such as award letters or pension statements.
• Government-issued photo ID and authorization to pull your credit.

Asset depletion compared with other non-QM options

Asset depletion is one of several alternative-documentation paths, and the right one depends on where your strength lies. If your business deposits tell the real story, a bank statement program may count more of your income. If your CPA or tax preparer can produce a clean profit-and-loss statement, a P&L program may fit. If your savings are large compared with your income, asset depletion may produce the strongest qualifying figure. Some borrowers qualify under more than one approach, and a loan officer can show how each one treats your file.

Rental-property loans based on the property's rent are a separate category and do not rely on your personal income or assets in the same way.

Trade-offs to weigh

• Keeping cash versus paying it out. Some borrowers could buy with cash but prefer to keep their money invested or liquid. Weigh the cost of the loan against what your assets might earn.
• Down payment and pricing. Many programs expect a larger down payment, and pricing is often higher than agency loans.
• Market moves. If your investments drop before closing, your qualifying figure can drop too.
• Loan features. Ask whether the offer includes an adjustable rate, an initial interest-only period or a prepayment penalty.

How to get started

Make a simple list of every account you hold, who owns it, what kind of account it is and whether you can withdraw from it. Gather recent statements for each one. Then ask a licensed loan officer to run your numbers under more than one asset program, and under an agency loan if one may fit, so you can compare qualifying income, down payment expectations and loan features side by side. Programs vary by borrower, property and investor, and the same assets can lead to different results at different lenders.

Frequently asked questions

Next steps

• Asset Depletion Mortgages
• Non-QM Loans
• Asset Depletion Mortgages in Florida
• Asset Depletion Mortgages in New York
• Asset Depletion Mortgages in New Jersey
• Asset Depletion Mortgages in Pennsylvania
• Asset Depletion Mortgages in Connecticut
• Asset Depletion Mortgages in Virginia

Sources

• Fannie Mae Selling Guide: Other Sources of Income (includes employment-related assets as qualifying income)
• CFPB: Regulation Z, 12 CFR 1026.43, minimum standards for transactions secured by a dwelling
• CFPB: What is the ability-to-repay rule?
• CFPB: What is a Qualified Mortgage?
• CFPB: Loan Estimate explainer