Most people don’t stay in one job forever. Many lender guidelines pretend they do.

To qualify for a mortgage, a lender’s primary concern is whether your income is sufficient to support the loan. Fannie Mae currently lists 26 different income sources outside of traditional W2 employment or self-employment that can be used to qualify. I believe the most underutilized income source is your assets. That’s right, you can use assets as income. 

The problem: Under traditional mortgage rules, using assets as an income stream is extremely limited. If you are being declined by a traditional bank, this method of qualifying definitely deserves a closer look. Traditional banks often require assets to be employment-related, meaning they need to be tied to your current employer to be counted as income.

Traditional banks typically require assets to be employment-related, meaning they must be tied to your current employer to be counted as income. A 401(k) rolled into an IRA generally cannot be used. A traditional brokerage account is not allowed. Even checking and savings accounts are excluded.

To be clear, banks will absolutely use these accounts to document sufficient funds for your down payment and closing costs. However, if you are being declined due to insufficient income or too much debt, there are lenders that allow assets to be used for qualifying income.

Consider this: approximately 60% of traditional IRA accounts include funds that originated from an employment-related rollover. That represents a large group of borrowers who, in my opinion, clearly have the ability to repay their loan but are still being declined under conventional rules.

Here is a reality check.  The average American changes jobs 10 to 12 times over the course of a career. Fewer than 20% of workers stay with a single employer long enough to retire there. The majority of retirement assets today sit in rolled-over 401(k)s and IRAs. Yet traditional mortgage guidelines only allow asset-based income if those assets are tied to your current employer.

By some industry estimates, well over half of asset-rich borrowers hold funds that cannot be used under conventional underwriting, even though the money is liquid, documented, and readily available. That math works against retirees and fixed-income households.

The solution: There are loan options, often with reasonable rates, that change the equation entirely.

We work with lenders who understand that these borrowers represent good credit risk and allow assets to be used as qualifying income. There are lenders that allow for:

• Checking, savings, and money market accounts to be used at 100% of the balance
• Investment and brokerage accounts at 90%
• Retirement accounts such as IRAs, or even a 401(k) from a previous employer, at 80%

On top of the fact that these assets can be used outside of traditional bank mortgages, the bigger benefit is how the income is calculated. Traditional banks using conventional guidelines spread assets over 360 months.  Using assets as income with more aggressive lenders can be calculated over just 60 months!

Let's look a simple example.  A borrower has $50,000 in an IRA outside of a his current employment.  Eighty percent is eligible, or $40,000.  Divided over 60 months, that creates $666 per month in qualifying income.  That $666 per month is often the difference between an approval and a decline.  Under conventional rules, that same $50,000 would not count at all because the person had set up that IRA outside of a job or left a job and rolled it over.  Even if it were held in a current-employer 401(k) and allowed, the income would be spread over 360 months, producing just $111 per month—hardly meaningful.

One more example with an even bigger asset amount.  Assume a borrower has $250,000 in a 401(k) with a previous employer.  Under traditional guidelines this income is not eligible.  Even if was to be used, we are only going to be able to count $694 per month in qualifying income.  Now compare that to an asset-based program that allows retirement accounts to be used at 80% of the balance and calculated over 60 months.  We would be allowed to use an additional $3,333 per month in qualifying income!

If that was not enough, there are more limiting factors with traditional banks using assets. They require a 30% down payment in most situations. They do not allow cash out refinances. They do not allow for rental properties.

If you’ve been told you don’t qualify because your income is too low, but you have assets, you may have far more options than you’ve been led to believe.

Smarter lending. Common-sense math. More approvals.

For those who want to review how traditional guidelines treat asset-based income, Fannie Mae explains it in detail under the section titled “Employment-Related Assets as Qualifying Income” here:

https://selling-guide.fanniemae.com/sel/b3-3.1-09/other-sources-income