The Quick Read: If your pension, annuity, or regular retirement withdrawals already cover the payment and your other debts, use the income you receive. It is the simpler file. If your income is thin but your retirement balances are large, asset depletion can turn those balances into qualifying income. That means a lender divides eligible assets over a set number of months. It is a paper calculation, and you do not have to withdraw anything. Many couples use both together, and the agencies’ rules decide which assets count.
Key Takeaways
- Income you already receive is documented as income. Assets you hold but do not draw are converted into a hypothetical monthly figure.
- Pension income is usually the lighter file. Asset depletion is the tool for people who are rich on paper and light on monthly income.
- Fannie Mae and Freddie Mac write their asset rules separately, and both have changed recently. Leverage, eligible accounts, and age conditions differ between them.
- Every dollar of down payment, closing cost, and required reserve comes out of the asset pool first. A bigger down payment lowers the income the assets can produce.
- Check current guidelines at application. Lender overlays can be stricter than the agencies.
Side-by-Side
The table covers a conventional purchase of a primary home. Every program detail is subject to lender guidelines and full file review.
Conventional payment estimate
The starting figures are an example price at the first-time buyer’s minimum down payment. Replace them with yours.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a conventional loan quote.
Estimate seeded at the low end of Fannie Mae’s published range (0.58%–1.86% a year); the insurer prices the actual premium on the score and the leverage. Applies only above 80% loan-to-value.
Illustrative starting assumptions: a $350,000 price, the first-time buyer’s minimum down payment, a thirty-year term at the current Freddie Mac benchmark, mortgage insurance at the low end of Fannie Mae’s published range, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a conventional loan quote; your rate is set by the lender at lock. The mortgage insurance figure is an editable estimate seeded from Fannie Mae’s published typical range, not a premium quote; the insurer prices the actual premium, and the cancellation month assumes scheduled payments with no extra principal and no change in value. Taxes, insurance and dues are editable estimates; closing costs are not included. Conforming loan limits apply by county. Licensed in sixteen states for consumer mortgages.
| Factor | Pension / Retirement Income | Asset Depletion |
|---|---|---|
| Standard purchase leverage | Up to 95% on a principal residence | Same program, plus its own LTV cap |
| Credit floor | 620 wholesale; automated finding governs | Same 620 wholesale floor |
| Mortgage insurance | Required above 80% LTV | Required above 80% LTV |
| Occupancy | Primary, second home, per program | Fannie Mae: primary and second home |
| Documentation | Award letter, statements, 1099 | Account statements, access, penalty check |
| Counts as | Real, ongoing cash flow | Hypothetical qualifying income only |
Two rows deserve a closer look. Leverage on the asset route is capped separately from the general purchase limits, and the cap depends on the asset owner’s age at Fannie Mae. Credit and mortgage insurance rules are the same either way. The 50% automated ratio ceiling applies to the debt-to-income calculation, and either income type feeds into that same calculation.
What Does “Asset Depletion” Actually Mean Here?
Neither agency uses the phrase. It is a market nickname for two differently written policies. Fannie Mae files its version under employment-related assets as qualifying income. Freddie Mac calls its version accumulated assets as income. The two share a rough idea but differ in the details.
The idea works like this. A lender totals the eligible assets. It subtracts any early-withdrawal penalty, then subtracts what you will spend on the down payment, closing costs, and required reserves. What is left gets divided by a set number of months. The result is a monthly income figure used only for qualifying.
That last point matters. The figure is not a withdrawal schedule. You do not have to touch the account, and the lender does not check whether you do.
Under Fannie Mae’s rule for employment-related assets, the route fits purchases and limited cash-out refinances on a principal residence or second home. You need unrestricted access to the funds. If pulling the money out would trigger a penalty, the penalty on a full distribution is subtracted before income is calculated. Joint owners must all be on the loan.
How a Lender Reads a Pension
A pension is the easier story to tell. The lender asks three plain questions. Is the money arriving? Is it steady? Will it keep arriving?
Fannie Mae’s pension, annuity, and retirement income guidance accepts several kinds of proof. A statement from the payer works. So do a retirement award letter, a bank or account statement, a signed tax return, or a W-2 or 1099.
History and continuance work differently by payment type:
- Fixed payment: no minimum history is needed. A pension you started drawing last month can count.
- Variable distribution: the lender wants a 12-month history and averages the most recent 12 months.
- Continuance: distributions from accounts such as a 401(k) or IRA, and personal annuities, must be expected to continue for at least three years.
- Pension paperwork silent on duration: the lender may lean on other evidence, such as the governing government program or a written agreement.
Fannie Mae also recently changed two details, according to Announcement SEL-2026-09. The three-year clock now runs from the application date rather than the note date. And the guidance now covers income that starts after closing but before the first mortgage payment. In that case, a benefit statement from the payer must show the income type, amount, payment frequency, and start date.
So a pension that kicks in a few weeks after you close can still count. The paperwork just has to say so.
When the Pension Is the Better Fit
Pension income is the better fit when it already does the heavy lifting. Picture a retired couple who each draw a pension and Social Security. Together, those checks cover the housing payment and their other monthly debts with room to spare. For them, asset depletion adds complexity and not much else.
A few signs the pension route is the right one:
- The income is already flowing. Fixed payments qualify without a waiting period, and the documents are easy to pull together.
- You want to keep your balances intact for reserves and the down payment. Under the asset route, every dollar you commit to closing shrinks the pool that produces income. The pension route does not penalize you for a larger down payment.
- Leverage matters. The asset route has its own LTV limit. If you want the standard purchase leverage for a principal residence, income you already receive keeps you inside the general program.
- You are under the age where the asset route loosens. At Fannie Mae, the higher leverage cap on the asset route applies when the asset owner is at least 62 at closing. A younger spouse can change the math.
- The paperwork is simple. An award letter, a bank statement, and a continuance determination. That is a short checklist compared with an asset file.
One honest caution. A pension that reduces or ends on one spouse’s death needs a closer look. If the survivor benefit is smaller, the lender may count only what is expected to continue. Bring the full benefit statement, not just the current-payment page.
When Asset Depletion Is the Better Fit
Asset depletion is the better fit when your balances are large and your monthly income is small. Think of a couple who sold a business or retired from jobs without a pension. They hold substantial retirement accounts but draw little from them. On income alone, the file looks thin. With the asset calculation, it can look quite different.
The route tends to fit when:
- Documented income falls short. The pension and Social Security cover some of the payment, but the ratio is tight or over the limit.
- You hold eligible, accessible accounts. Retirement accounts you can fully reach count. So do documented severance or lump-sum retirement distributions. Ordinary cash and non-employment assets are generally not eligible at Fannie Mae, so a savings balance may not carry the file.
- You can afford to count the pool down. After the down payment, closing costs, and reserves, enough must remain to produce the income the file needs.
- You are buying, not doing a large cash-out. At Fannie Mae the route covers purchases and limited cash-out refinances only.
The two agencies differ here, and the difference is moving. Freddie Mac Bulletin 2026-10 changes its accumulated-assets rules for settlement dates on or after its stated effective date, and lenders may adopt it early. Among the changes, the Bulletin sets a minimum net eligible asset amount, permits all occupancies, shortens the divisor, and drops the borrower age restriction for depository accounts and securities. A shorter divisor spreads the same pool over fewer months, so it produces more monthly income.
Whether a given lender has adopted those changes yet is a question for that lender. Many lenders add their own overlays on top. Under the older Freddie Mac text, retirement assets could not already be a source of income. A couple already drawing from an IRA may need the distribution route instead.
Can You Combine Them?
Yes, in the right setup. A pension covers part of the qualifying income, and eligible assets cover the gap. The key is no double counting. A dollar that is already counted as income through a regular distribution is not also counted as an asset to be converted.
Here is a simple way to picture it, with no dollar amounts. Say a couple’s pension and Social Security cover most of what the lender needs to see. They hold a retirement account they do not draw from. Under the asset route, the lender converts that undrawn account into extra monthly income. The pension is documented as income. The undrawn balance is converted. Together, they clear the ratio.
Now flip it. Another couple has a larger pension that already clears the ratio. Asset depletion would add margin they do not need. They skip it and keep the file light.
And a third couple has no pension. They rely entirely on the asset calculation, so the pool left after closing must be large enough on its own.
| Your Situation | Lean Toward | Ask the Lender |
|---|---|---|
| Pension clears the ratio | Pension only | Is the continuance letter enough? |
| Pension close but short | Pension plus assets | Which accounts count, and at what age? |
| No pension, large balances | Assets only | Does the pool survive closing costs? |
| Already drawing from an IRA | Distribution route | Is a 12-month history needed? |
The calculated income, whichever way you build it, goes into the debt-to-income ratio alongside all other income and debts.
Couple-Specific Issues
Couples add wrinkles that single borrowers do not face.
Titling. Jointly held assets mean all owners must be borrowers under Fannie Mae’s rule. A spouse who owns an account must sign onto the loan if you want that account counted. Under Freddie Mac’s older text, retirement assets had to be held by the borrower alone.
Age. At Fannie Mae, the borrower using the income must be at least 62 for the higher leverage limit on jointly owned assets. One spouse being younger can pull the limit down.
Early withdrawal. If either spouse is under 59½, the penalty on a full distribution may be subtracted from the asset pool before income is calculated.
Survivor benefits. A pension that drops when one spouse passes can affect how the lender views continuance. Bring the full benefit statement.
Foreign pensions. These can be documented under the pension income requirements, but confirm the current guide before relying on that.
Crypto. Freddie Mac does not accept cryptocurrency as an asset supporting dividend and interest income. Do not count on it.
Risks and Tradeoffs
Asset depletion is not free money. It has real downsides.
First, the qualifying income is hypothetical, but the mortgage payment is real. A couple qualifying mostly on the asset calculation must still pay from whatever they actually draw. If markets drop after closing and balances shrink, the payment does not shrink with them.
Second, liquidity gets thinner. A large down payment helps with leverage and mortgage insurance. It also shrinks the pool that qualified you. Those two goals pull against each other.
Third, withdrawals can carry tax consequences. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Fourth, the rules are in motion. Both agencies restructured and amended their guidance recently. A lender matrix printed a few months ago, or an older article, may cite a retired section number. Some articles still quote a 30% haircut on stocks and bonds. Fannie Mae removed that in an earlier announcement, so do not plan around it.
And there is a plain-spoken fifth point. If income alone gets you through, the extra complexity of an asset file buys you little. A simpler file has fewer places to stall.
Where Mortgage Insurance and Leverage Fit
Mortgage insurance on a conventional purchase is required above 80% LTV. You can request cancellation at 80% of the original value with a good payment history, no subordinate liens, and no decline in value. The servicer must end it automatically at 78%. Published typical annual premiums run from 0.58% to 1.86% of the balance, a range and not a quote. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Many retired couples put a large amount down from the sale of a prior home. A big down payment can bring the loan below 80% and remove mortgage insurance entirely. On the asset route, that same big down payment reduces the pool. It is a genuine tradeoff, and it is worth testing both ways before you commit.
If your loan needs to exceed the conforming limit, a different lane applies. Lendmire’s piece on how jumbo and super jumbo loans work for a retiree using assets covers that case.
Key Terms Defined
Asset depletion: a market term for converting eligible assets into hypothetical monthly income for qualifying purposes only.
Continuance: the lender’s finding that income is expected to keep arriving for the required period.
Debt-to-income ratio (DTI): your monthly debts divided by your monthly qualifying income.
Reserves: money left in accessible accounts after closing, which lenders may require.
Unrestricted access: the ability to withdraw funds without a penalty or a restriction that blocks you.
Overlay: a lender rule stricter than the agency minimum.
A Balanced Verdict
Use the pension when it carries the file. It is documented easily, it keeps your balances free for the down payment and reserves, and it does not depend on which agency’s asset rules apply on your closing date.
Use asset depletion when your balances are the strength of the file. It is built for exactly that profile, with the understanding that closing costs and the down payment shrink the pool.
Use both when the pension is close but not quite enough. That is common, and it is a perfectly ordinary file.
None of these is a promise of approval. Eligibility depends on the lender, the program, the property, your credit, and a full review. Ask early which agency rules your lender follows and whether it has adopted the newest changes.
Frequently Asked Questions
Can a retired couple use a pension and asset depletion on the same loan?
Yes, when the lender’s program allows it. The pension is documented as income you receive, and eligible undrawn assets are converted into additional qualifying income. The same dollars cannot count twice, and the combined income feeds the debt-to-income calculation.
Do we have to withdraw the money if we qualify with assets?
No. The asset calculation is a qualifying tool only. You are not required to withdraw the figure the lender calculates, and the file does not track whether you do.
Does a retirement account count if we have not started drawing from it?
Often, yes, if you have unrestricted access to it. Fannie Mae’s route covers retirement accounts you can fully reach. A penalty on a full distribution is subtracted from the pool first. Freddie Mac’s older text said retirement assets could not already be a source of income, so how an account is currently used matters.
What if my spouse owns the account and is not on the loan?
Under Fannie Mae’s rule, all owners of a jointly held asset must be borrowers. A spouse who solely owns an account and is not on the loan is a different question. Ask your lender how that account would be treated before building the file around it.
Does a pension that stops or shrinks on one spouse’s death hurt the file?
It can, because the lender must find that the income is reasonably expected to continue. Bring the full benefit statement showing survivor terms, so the lender counts what will actually continue.
For current guidelines, see conventional loan programs.
If you are buying a home and want to see whether a conventional loan fits your file, request a scenario review with Lendmire to compare the options and what each one asks of the file.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Freddie Mac
2. Fannie Mae Selling Guide B3-3.4-06: Employment-Related Assets as Qualifying Income
3. Fannie Mae Selling Guide B3-3.4-03: Annuity, Pension, or Retirement Income
4. Fannie Mae Announcement SEL-2026-09
5. Freddie Mac Bulletin 2026-10
6. Fannie Mae Announcement SEL-2020-07
This article is part of Lendmire’s conventional loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How a Lender Counts a Pension Toward Conventional Loan Qualifying · How to Get PMI Cancelled on a Conventional Loan Under the HPA · How to Finance a Vacation Home With a Conventional Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.