The Quick Read: The right program is the one whose collateral rules fit your specific work, because assets can replace income documentation but the appraisal still sets the loan size, and the lender’s view of the unpermitted space decides how much cash you can pull. Lendmire is a mortgage broker. It matches your statements and your property to select lenders in its network, subject to underwriting.
- Assets stand in for income documentation. They do not stand in for the appraisal.
- On the asset depletion path, cash-out tops out at 60% loan-to-value on a principal residence, second home or investment property, measured against the value the appraiser supports.
- On the asset qualifier path, the lender sets cash-out terms and does not publish them, so that is a conversation, not a number.
- Safe, finished, cosmetic work usually causes less trouble than structural, electrical or gas work.
- Value that gets excluded shrinks your proceeds directly.
What an Asset-Based Cash-Out Refinance Actually Is
An asset-based mortgage is reviewed around what you own instead of what you earn. Lendmire arranges these loans through asset-based mortgage programs with select lenders. The file is fully underwritten. You document the assets with statements, and you skip traditional personal-income documentation, pay stubs and employment verification.
The reader this fits is cash-heavy and income-light. Think retirees, someone who sold a business, an heir, or a household living off a portfolio. Their balances are large and their documented income is small.
Two paths exist, and a borrower is qualified on one at a time.
- Asset qualifier path. Eligible assets, after credit percentages, must equal or exceed the entire loan. No employment or income is documented.
- Asset depletion path. Eligible assets, after haircuts, are divided by 60 months to create a monthly qualifying income. That income then runs through the debt-to-income test.
Unpermitted work does not change which path you choose. It changes the collateral, and the collateral is a separate review from your assets.
Which Path Fits a Cash-Out on This Kind of Property?
For most borrowers who need cash out, the depletion path is the published route. It states cash-out leverage plainly: up to 60% on a principal residence, a second home or an investment property, subject to underwriting. Investment property is eligible only on this path. On the qualifier path, leverage reaches 75% on a refinance, but whether cash-out proceeds are allowed, and at what leverage, is a lender decision that is not published.
Loan sizes run $125,000 to $3,500,000 on the depletion path and up to $4,000,000 on the qualifier path. Credit starts at a 600 floor on the qualifier path. The depletion path follows the lender’s matrix, and a first-time investor there needs 700.
Depletion also has minimums. You need qualified assets of at least the lesser of $1,000,000 or 1.25 times the loan balance. If depletion is your only income source, you need at least $250,000 in liquid assets regardless. Cash-out proceeds never count as qualifying assets.
What Counts as an Asset
Credit varies by path, so never mix the two tables.
| Asset | Qualifier path | Depletion path |
|---|---|---|
| Cash, savings, money market | 100% | 100% (cash accounts) |
| Certificates of deposit | 100% | 100% |
| Brokerage / securities | 100% | 80% |
| Retirement accounts | 90% under 59½, 100% after | 70% at any age |
| Real-estate equity | Not listed | 60% |
Privately held company stock is not an eligible asset on either path. A founder’s route is documented liquid assets: seasoned proceeds from a sale or buyout, cash, public securities and retirement accounts at their credit percentages. Cryptocurrency, precious metals, collectibles and borrowed funds are not published as eligible. The route there is converting them to a seasoned cash balance in a regulated account, with the source reviewed by the lender.
Seasoning differs too. The qualifier path wants 60 days of seasoning and two months of statements per account. The depletion path wants statements at least 120 days old plus a recent statement within 45 days, and sale-of-business, inheritance and settlement funds are excused from that seasoning.
Here is the illustrative depletion math. Say you hold $1,500,000 in securities (80% counts, so $1,200,000) and $300,000 in cash (100%). That is $1,500,000 usable, divided by 60 months, for $25,000 of monthly qualifying income. That income must then carry the housing payment and other debts through the debt-to-income test. The lender’s own calculation governs.
How Underwriting Treats Unpermitted Work, Step by Step
Collateral review runs the same way whether or not income is documented. Here is the sequence on these files.
1. Disclosure. Tell your broker about the work before anything is ordered. Surprises found by the appraiser are harder to fix than work you disclosed.
2. Detection. Appraisers measure on site and compare what they see with assessor or permit records. A mismatch in square footage or room count is a flag, as one practitioner explainer describes.
3. Appraiser treatment. The report may note the work, leave it out of gross living area and room count, give it a reduced adjustment, or give it nothing. Whether space counts depends on the quality of the finish, the local market and comparable sales.
4. Underwriter response. The loan is sized on the value the appraiser supports. The lender can accept the value as is, exclude the space, require a repair or a permit, or decline.
5. Leverage applies last. The cash-out ceiling is a percentage of that supportable value. Any value trimmed by the appraiser reduces the maximum loan.
For contrast, the agency standard is not a ban. The Fannie Mae Selling Guide says an appraiser who finds an addition without the required permit must comment on the work’s quality and its impact, if any, on market value. Agency rules do not govern asset-based loans, but the wording shows even the agency benchmark is disclose-and-assess. That same explainer adds that no rule requires unpermitted space to be excluded. What you will actually see is that many appraisers and lenders do not credit it.
Measurement is a separate test from permits. A finished area generally needs at least seven feet of ceiling height to count as living area. A room can fail on ceiling height even if it was fully permitted.
What Kind of Work Is It? A Decision Table
Lender reaction depends heavily on what was built. This table shows the usual pattern. Treatment is set by each lender and appraiser, subject to lender guidelines.
| Type of work | Appraiser’s usual move | Likely lender reaction |
|---|---|---|
| Cosmetic, safety-neutral | Notes it, little effect | Often acceptable as is |
| Finished basement or below-grade space | Reported apart from above-grade area | Value adjusted, often lower |
| Garage conversion or added room | May exclude from living area | Value trimmed, possible permit ask |
| Extra unit or unpermitted ADU | Needs comparable sales to credit | Frequently excluded from value |
| Electrical, gas, plumbing, structural | Flags safety concern | Repair or permit condition likely |
Safety and habitability sit at the top of the list. A lender treats a finished bonus room very differently from a gas line nobody inspected.
Your Options When the Appraisal Discounts the Work
Illustrative math shows the stakes. If the appraiser trims supported value by a tenth, the maximum cash-out loan trims by the same tenth, because the leverage percentage applies to a smaller number. You do not get to argue that back with your asset balance. Here are the realistic moves. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
- Take less cash. The simplest option. Size the request to the value without the unpermitted space.
- Permit it first. If your local office allows retroactive permits, legalizing before the appraisal can bring the space back into value. Permitting during the work is cheaper than after, but that window may already be closed.
- Bring comparable evidence. Where converted garages or casitas are common, comparable sales may support value. A non-compliant accessory unit needs at least two comparable sales with the same non-compliant use, according to the Fannie Mae appraisal FAQ.
- Rework the structure. A different program or path may treat the collateral differently. A broker who shops several lenders can match your scenario to the one with the right overlays.
- Request a review. If the appraiser missed a permit or a comparable, supplying documents can prompt a reconsideration.
Running your numbers as if the unpermitted space does not exist is the safest planning stance. If the loan works that way, any credit the appraiser gives is a bonus.
Where the General Rule Breaks
Unpermitted work does not always shrink value, and some cases are worse than a haircut.
Unsafe conditions. No program funds work that looks structurally, electrically or gas-wise unsafe. Expect a required repair, an inspection or a decline.
Unpermitted units and rent. Asset-based underwriting does not lean on rent, since assets carry the file. That makes this path friendlier than rent-based programs to a property whose income depends on an unpermitted unit. The unit can still be excluded from value. Lendmire’s piece Best DSCR Cash-Out Refinance Program on a Property With Unpermitted Work covers the rent-based side.
Work done by a prior owner. You inherit the problem. As-built drawings, a contractor letter or an inspection report can help the appraiser and underwriter judge quality.
Jurisdictions that will not permit after the fact. Some municipalities do not issue retroactive permits, and setbacks or zoning can block legalization. Check locally, because rules vary by jurisdiction.
Records that disagree. The tax assessor’s record and the building department’s permit record are separate systems. A clean tax record does not prove legal status.
Legal versus unpermitted. Unpermitted work was never legal. That is a different thing from a lawful non-conforming use that predates a zoning change, and a lender may treat the two differently.
Ineligible assets. If your plan to cover the loan rests on private stock or crypto, the unpermitted work is not your biggest problem. Convert those holdings into a seasoned cash balance first.
Documents Worth Pulling Before You Apply
A short file prepared early beats a long one assembled under a condition. These are the documents worth gathering:
- Recent statements for every qualifying account, in line with the path’s seasoning rules.
- Contractor invoices, receipts or letters describing the unpermitted work.
- As-built drawings or inspection reports, if they exist.
- Any correspondence with the permit office, including a denial.
- The lease, if a tenant occupies the space.
- A clear statement of whether the property is your home, a second home or an investment.
Also talk to your insurer. Standard policies generally do not carry a blanket exclusion for unpermitted work, but a claim tied to an unpermitted area can be disputed, so ask about your specific policy.
Key Terms Defined
Unpermitted work: construction or alteration done without the building permit or final inspection your local office required.
Asset qualifier path: a way to qualify where eligible assets cover the whole loan and no income is documented.
Asset depletion path: a way to qualify where usable assets divided by 60 months become qualifying income.
Cash-out refinance: a new mortgage larger than the one it replaces, with the difference paid to you.
Supportable value: the value the appraiser stands behind after any exclusions, which is the number the loan percentage applies to.
Gross living area: the finished, above-grade space counted in a home’s size.
Seasoning: how long funds have sat in your account before the lender will count them.
Choosing the Right Program for Your Situation
The best program for your situation depends on your property type, credit profile, leverage need and the nature of the work. No single lender or program fits every file. A broker that shops multiple lenders can match the scenario to collateral rules that tolerate it. Programs change, and every file is underwritten individually.
If you are qualifying on assets rather than income and want to see how the numbers work, Lendmire can help you compare asset-based mortgage options based on your statements, the property, credit profile, leverage, and your goals.
Frequently Asked Questions
Can I do an asset-based cash-out refinance on a property with unpermitted work?
Sometimes, depending on the work and the lender. The appraisal still gates the loan, so the appraiser’s treatment of the work and the lender’s collateral policy decide the outcome. Cosmetic work tends to be easier than structural or safety-related work, subject to underwriting.
Will the appraiser count unpermitted square footage?
Often not, but no rule forces exclusion. Finished space may be counted or adjusted downward if it matches the rest of the home and local comparable sales support it. Below-grade space is reported separately from above-grade living area either way.
How much cash can I take out?
On the asset depletion path, up to 60% loan-to-value on a principal residence, a second home or an investment property, applied to the supportable value. Cash-out terms on the qualifier path are set by the lender and not published. Any excluded value lowers the maximum.
Does an unpermitted rental unit hurt qualification?
Not directly on an asset-based file, since qualification rests on your assets, not rent. It can still be excluded from value, which reduces proceeds.
Should I permit the work before I refinance?
If your local office allows it and the cost fits, legalizing can bring the space back into supportable value. Some municipalities do not permit after the fact, so confirm locally before you plan around it.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps self-employed and high-net-worth borrowers in 16 states qualify on bank statements, a profit-and-loss statement, 1099s or liquid assets instead of tax returns, through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and its guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For how equity extraction works on an investment property, see Lendmire’s guide to cash-out refinance on an investment property.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Local Real Estate Online explainer on unpermitted square footage
2. Fannie Mae Selling Guide, section B4-1.3-05
This article is part of Lendmire’s asset-based mortgage program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Best Asset-Based Cash-Out Refinance Program Before Your ARM Resets
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.