For borrowers with substantial assets but limited traditional income, asset-depletion loans can provide a powerful path to mortgage qualification. This strategy allows lenders to convert a borrower’s liquid assets into qualifying income, making it possible to secure financing without relying solely on employment income or tax returns. However, when using asset depletion under agency guidelines, it’s important to understand that Fannie Mae and Freddie Mac have different requirements. These differences can significantly impact loan-to-value limits, asset calculations, and borrower eligibility.
What Is Asset Depletion?
Asset depletion is a qualifying method where a borrower’s liquid assets are converted into a monthly income stream for mortgage underwriting purposes. Instead of verifying income through:
- W-2s
- Pay stubs
- Tax returns
We calculate income by spreading eligible assets over a set period.
Eligible assets may include:
- Cash reserves
- Brokerage accounts
- Retirement accounts (sometimes with adjustments)
- Other liquid financial assets
This approach is commonly used by:
- Retirees
- High-net-worth individuals
- Entrepreneurs
- Investors with large liquidity but minimal reportable income
Fannie Mae Asset Depletion Guidelines
Fannie Mae takes a more conservative approach to qualifying for asset depletion.
Maximum Loan-to-Value
Fannie Mae allows asset depletion financing up to:
70% LTV
And only for:
- Primary residences
- Single-family homes
This means the borrower must bring at least 30% down payment or equity into the transaction.
Transaction Types Allowed
Fannie Mae allows asset depletion for:
- Purchases
- Rate-and-term refinances
Cash-out refinances are not permitted under this structure.
Asset Calculation Method
Fannie Mae uses the following formula:
- 70% of eligible assets
- Divided over 360 months (30 years)
This creates a conservative monthly income calculation designed to ensure long-term sustainability of the borrower’s assets.
Freddie Mac Asset Depletion Guidelines
Freddie Mac provides more flexibility in several key areas, including higher leverage and broader property eligibility.
Maximum Loan-to-Value
Freddie Mac allows asset depletion up to:
80% LTV
This applies to:
- Primary residences
- Two-unit properties
The higher LTV option can make Freddie Mac more attractive for borrowers seeking to preserve liquidity or reduce down payment requirements.
Transaction Types Allowed
Like Fannie Mae, Freddie Mac allows asset depletion for:
- Purchases
- Rate-and-term refinances
Freddie Mac Asset Calculation Advantage
One of the biggest differences lies in how Freddie Mac calculates qualifying income from assets.
Freddie Mac allows lenders to use:
- 100% of eligible assets
- Divided by 240 months (20 years)
This shorter amortization period results in higher qualifying income than Fannie Mae’s approach. However, there is an important condition.
Age Requirement
To use Freddie Mac’s asset depletion method:
The borrower must be at least 62.5 years old by the closing date. This requirement reflects that the program is often designed for borrowers transitioning into retirement who plan to draw on their assets.
Key Differences at a Glance
| Feature | Fannie Mae | Freddie Mac |
|---|---|---|
| Max LTV | 70% | 80% |
| Property Types | Primary Single-Family | Primary Single-Family & 2-Unit |
| Asset Usage | 70% of assets | 100% of assets |
| Asset Calculation | ÷ 360 months | ÷ 240 months |
| Age Requirement | None | Borrower must be 62.5+ |
| Transactions | Purchase & Rate/Term | Purchase & Rate/Term |
Your best bet is to contact our office and speak to a specialist for more information about our programs.
