The Quick Read: Home equity and a mutual fund portfolio can work together to buy a rental, but in separate roles: a cash-out refinance on your own home supplies the down payment, while your documented securities become the qualifying income that supports that refinance. The two pieces are underwritten separately, and the cash you pull out can never be counted as your own assets. Everything below is subject to underwriting and available through select programs.
- On the asset depletion path, mutual funds and other securities count at 80%, divided over 60 months into monthly qualifying income.
- That same path allows up to 60% leverage on a cash-out refinance of a principal residence.
- Cash-out proceeds never count toward the qualifying assets, so the funds cannot be used twice.
- Selling the funds is not required, but pledging or borrowing against them creates problems a lender will review. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
This is written for cash-heavy, income-light borrowers: retirees, people who sold a business, recipients of an inheritance or settlement, and households living off a portfolio. Balances are large and paycheck income is thin or absent.
Key Terms Defined
Asset-based mortgage: A home loan where the lender reviews your file on documented assets instead of tax returns, pay stubs or employment verification. Every file is still fully underwritten, and the assets are documented with statements.
Asset qualifier path: The version where eligible assets must equal or exceed the entire loan amount, and no income is documented.
Asset depletion path: The version where eligible assets, after haircuts, are divided by 60 months into a monthly qualifying income that runs through a debt-to-income test.
Haircut: The share of an account’s balance a lender refuses to count. An account counted at 80% carries a 20% haircut.
Seasoning: The time funds must sit in your account, shown on statements, before a lender accepts them.
Cash-out refinance: A new first mortgage that replaces your existing one and returns the extra equity as cash.
Which Path Fits: Assets Cover the Loan, or Assets Become Income?
The two paths solve different problems, and a borrower is qualified on one path at a time. Choose the path before you choose the structure.
On the asset qualifier path, your usable assets must cover the whole loan. Brokerage accounts, certificates of deposit, money market and savings count at 100%. Retirement accounts count at 90% under age 59½ and 100% after. Accounts combine. Take an illustrative $800,000 loan backed by $330,000 in brokerage accounts, $300,000 in a 401(k) under 59½ (counted at 90%, so $270,000) and $200,000 in savings. That counts $800,000 of usable assets and can qualify on assets alone, subject to underwriting. Leverage reaches 80% on a purchase and 75% on a refinance of a principal residence or second home. Loans run up to $4,000,000, with a 600 credit floor. Whether cash-out is allowed on this path, and at what leverage, is set by the individual lender, so treat it as a question to ask rather than an assumption.
On the asset depletion path, assets turn into income. Take an illustrative $1,500,000 in securities, counted at 80% for $1,200,000, plus $300,000 in cash at 100%. That is $1,500,000 usable. Divided by 60 months, it produces $25,000 of monthly qualifying income, which then has to carry the housing payment and other debts. The lender’s own calculation governs. Loans run $125,000 to $3,500,000, and credit follows the lender’s score and loan-amount matrix.
If your wealth is large relative to the loan you want, the qualifier path is cleaner. If you want to keep investing your cash and still show income capacity, the depletion path is the realistic route for a cash-out.
How Does the Home Equity Piece Work?
A cash-out refinance on your primary residence replaces the existing first mortgage with a new, larger one, and you receive the difference. On the depletion path through select programs, a principal residence or second home can reach up to 60% on a cash-out refinance. Up to 80% is available on a purchase or rate-and-term refinance. Those are ceilings, not offers.
The cash-out refinance is the consumer loan on your home. It is a separate transaction from the rental purchase, and each loan is reviewed on its own merits. The cash you pull becomes the down payment on the rental, with these limits:
- It does not count as an asset. Cash-out proceeds never count as qualifying assets on the asset-based file.
- Equity elsewhere counts at a haircut. Equity in other real estate counts at 60% as an asset on the depletion path.
- Larger leverage on your home means a larger payment. More borrowed against the home means more income needed to carry it.
Two loans against one household also stretch cash flow. Before you pull equity, check that your documented assets, not just the future rent, can carry both payments.
How Are Mutual Funds Treated?
Mutual funds sit in the securities bucket. On the depletion path, securities count at 80%. On the qualifier path, brokerage accounts count at 100%. You do not have to sell. The lender is reading balances on statements, not asking for liquidation.
Retirement accounts behave differently. On the depletion path they count at 70% at any age. On the qualifier path they count at 90% under 59½ and 100% after. Age matters on one path and not the other, so a 57-year-old with a large IRA should compare both.
Cash accounts and certificates of deposit count at 100% on both paths. Not eligible on the depletion path: custodial accounts, deferred compensation, escrow accounts, foreign funds, cash on hand, stock options, non-vested restricted stock units, and funds from non-regulated financial companies.
What Doesn’t Count, and Why You Can’t Reuse the Same Dollar
Three things trip up the combined strategy.
Cash-out proceeds. The money you pull from your home is borrowed. It never counts as qualifying assets. If you leave it sitting in a savings account, it still doesn’t count.
Pledged or borrowed funds. Funds pledged as collateral or drawn from a credit line are not published as eligible on either path. A line secured by your securities is a loan, and the lender reviews where the money came from.
Privately held company stock. Privately held company stock is not an eligible asset on either path. A founder’s or shareholder’s route is documented liquid assets: seasoned proceeds from a sale or buyout, cash, public securities and retirement accounts at their haircuts.
Cryptocurrency, precious metals, collectibles and business accounts beyond your ownership share are likewise not published as eligible. The documented route is converting them to a seasoned cash balance in a regulated account, with the source reviewed by the lender.
Selling, Pledging, or Leaving the Funds Alone
You have three ways to use mutual funds, and they carry different risks.
Leave them alone. The funds stay invested and count toward qualification. This is usually the least disruptive choice on the depletion path.
Pledge them. A securities-backed line of credit uses your investments as collateral. The SEC and FINRA investor alert on these lines explains that the credit limit comes from applying an advance rate to eligible securities. Because prices move, the firm can liquidate securities and reduce your limit if you cannot repay on demand. A margin loan is a different animal: OneDigital’s explainer notes that federal margin rules generally allow borrowing up to 50% of the purchase price of eligible securities, and that a securities-backed line generally cannot buy securities or repay margin debt. Using one to fund a down payment on real estate is a separate topic from asset-based qualification, and a draw is still borrowed money.
Sell them. Selling produces cash that can season in your account, which makes it the cleanest paper trail. It also creates a taxable event. Selling mutual fund shares is reportable under the IRS capital gains rules, tax treatment varies, and a qualified professional should be consulted before you decide.
The practical split: pledge if you must keep the portfolio intact and can tolerate collateral-call risk, sell if you want a clean file and the tax cost is acceptable.
Putting It Together, Step by Step
Order of operations decides whether this works.
1. Pick the path. Decide whether assets cover the loan outright or become income.
2. Check seasoning. The depletion path wants statements at least 120 days old plus the most recent statement within 45 days. The qualifier path wants 60 days of seasoning and two months of statements per account. Sale-of-business, inheritance and legal-settlement funds are excused from the depletion-path seasoning.
3. Test the minimums. Depletion requires qualified assets of at least the lesser of $1,000,000 or 1.25 times the loan balance, and never below $250,000 liquid when asset depletion is the only income source. Asset-derived income can also supplement documented income up to a 45% debt-to-income ratio, and the minimum-assets rule is waived when it does.
4. Complete the cash-out refinance. This is the loan on your home, underwritten on the assets and credit.
5. Season the cash. Leave the proceeds documented and traceable.
6. Buy the rental. The purchase can come through an asset-based mortgage on the investment property, which on the depletion path reaches up to 65% on a purchase and 60% on a cash-out. Or it can come through a rent-based investor loan.
On rental purchases, an investment property on the asset depletion path allows lower leverage than a primary residence. Expect a larger down payment than an owner-occupied buy. For the program basics, see Lendmire’s asset-based mortgage programs.
Comparing Your Options
| Option | What gets reviewed | Best fit |
|---|---|---|
| Asset qualifier path | Assets cover the whole loan | Very large liquid balances |
| Asset depletion path | Assets become 60-month income | Portfolio-funded households |
| Cash-out refinance on home | Collateral and personal file | Down payment for the rental |
| HELOC or second lien | Equity, keeps existing first | Keeping a low existing first |
| Rent-based investor loan | Rent against the payment | Rental that carries itself |
The HELOC route is its own decision.
DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. They qualify primarily on property-level rental income covering the payment, subject to lender guidelines, and sub-1.00 programs exist through select lenders with adjusted leverage and terms. If the rental pays for itself, that route often fits better than asset-based, and you can still use the cash-out proceeds for the down payment, though whether a DSCR purchase program accepts borrowed funds varies by program and should be confirmed in writing before you draw.
Where the General Rule Breaks
Business owners and founders. The privately held stock rule above is the big one. A buyout converts illiquid shares into seasoned cash, and that cash counts.
Younger retirees. Retirement accounts at 90% under 59½ on the qualifier path versus 70% on the depletion path can swing the choice of path.
Newer investors. A first-time investor on the depletion path needs a 700 credit score. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Credit events. Housing history is reviewed at 0x30x12, with one 30-day late in the last twelve months considered case by case. Multiple bankruptcies are not eligible, and a housing event needs 4 years of seasoning on the depletion path.
Occupancy. If you take owner-occupied cash-out and then move out and rent the home, you have misrepresented occupancy. A home converted to a rental is a different loan class.
LLC-owned rentals. A bank HELOC rarely works on an entity-owned rental without a vesting change, which is why investors lean on investor-loan cash-outs for those properties.
Which Path Fits You?
- Equity-heavy, portfolio-light: A conventional cash-out or HELOC probably fits better than an asset-based file, since the asset-based paths need meaningful liquid balances.
- Portfolio-heavy, income-light: The depletion path, with the cash-out for the down payment.
- Balanced: Run both paths. The haircut differences on retirement accounts can decide it.
- Rent covers the payment: Consider a rent-based loan, with the cash-out as the down payment source.
The Stress Test Before You Commit
Stacked debt is the quiet risk. You carry the home’s larger payment and the rental’s payment together. Check three things:
- Vacancy. Can you carry both payments with the rental empty?
- Portfolio drop. If the funds fall, do your haircut balances still clear the minimums?
- The home. More leverage on the residence raises the stakes if the plan goes wrong.
Next Step
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. Lendmire arranges these loans as a broker through select lenders, subject to underwriting. The program covers consumer lending in 16 states: Alabama, California, Colorado, Florida, Georgia, Indiana, Michigan, Montana, New Mexico, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia and Washington.
Frequently Asked Questions
Do I have to sell my mutual funds to qualify?
No. On both paths the lender reads balances from statements. Eligible securities count at 80% on the depletion path and brokerage accounts count at 100% on the qualifier path, whether or not you sell. Selling only matters if you want a cleaner source-of-funds trail.
Can the cash I pull out of my home count as my assets or reserves?
No. Cash-out proceeds never count as qualifying assets. They fund the down payment, but your qualifying balances have to come from other documented accounts.
Does my home equity count as an asset?
Partly, and only on the depletion path. Equity in real estate counts at 60% there, while the cash from your own refinance does not count at all. Equity is mainly a source of cash, not a qualifier.
Can I use this to buy a rental with a founder’s private company shares?
The route is converting a sale or buyout into seasoned cash, then qualifying on that cash and your other documented accounts.
Is this a no-documentation loan?
No. There are no traditional personal-income documentation, pay stubs or employment verification, but every file is fully underwritten and your assets are documented with statements. Approval depends on credit, assets, the property and lender guidelines.
Investors weighing their equity options can start with Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Bank statement, P&L-only, 1099-only and asset-based mortgages for self-employed and high-net-worth borrowers are arranged through wholesale lenders on primary residences, second homes and investment properties; every file is underwritten by the lender under its program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. SEC and FINRA Investor Alert on Securities-Backed Lines of Credit
2. OneDigital: Borrowing Against Your Assets
3. IRS: Capital Gains, Losses and Sale of Home
This article is part of Lendmire’s asset-based mortgage program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Get a Texas Asset-Based Mortgage With No Job? · How Much Cash Can a New Mexico Homeowner Take Out on an Asset Depletion Refinance? · Can You Buy a Santa Fe or Taos Second Home on an Asset Qualifier Mortgage?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.