The Quick Read: Large depository banks rarely write this product, and the lenders that do sit mostly in a broker’s wholesale network. A cash-out refinance can fund an addition or ADU only with equity the home already has, because the loan is sized on today’s appraisal and not on the finished build.
- Asset-based means the loan is qualified on documented assets instead of paycheck income.
- The asset qualifier path covers the whole loan with eligible assets and documents no employment or income.
- The asset depletion path divides usable assets by 60 months into qualifying income.
- On the depletion path, cash-out tops out at 60% leverage, subject to underwriting.
- An unbuilt ADU adds no collateral value, so the equity has to exist in the current structure. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
The rest of this piece walks through how underwriting treats the file, which structures exist, and where the general rule breaks. Consumer lending for this program is licensed in 16 states, so availability depends on where the home sits.
What “Asset-Based” Means
Asset-based means the lender looks at what you own, not what you earn. The program suits retirees, people who sold a business, heirs, settlement recipients and households living off a portfolio. Their balances are large and their documented income is small. Lendmire’s asset-based mortgage programs are built for that reader, placed through select lenders in the brokerage’s wholesale network.
A borrower is qualified on one path at a time. The two paths do not blend.
| Factor | Asset qualifier path | Asset depletion path |
|---|---|---|
| How it qualifies | Assets cover the entire loan | Assets become monthly income |
| Income documented | None | Derived income, run through DTI |
| Purchase leverage | Up to 80% | Up to 80% (residence or second home) |
| Refinance leverage | Up to 75% | 80% rate-and-term, 60% cash-out |
| Loan amounts | Up to $4,000,000 | $125,000 to $3,500,000 |
| Credit | 600 minimum | The lender’s matrix |
These are ceilings and floors, subject to underwriting, not offers. Whether the qualifier path allows cash-out proceeds, and at what leverage, is set by the lender and is not published. For a cash-out plan, the depletion path is the one with stated cash-out leverage.
Do Banks Actually Offer This?
Mostly no. Big banks and large retail lenders keep proprietary products and tight in-house overlays, and a cash-out sized for a build is a poor fit for most of them. Asset-based cash-out sits with specialty lenders reached through a broker.
Lendmire is a mortgage broker. It does not lend. It shops the scenario across a wholesale network and matches the file to a program. The lenders that write this depend on the property type, credit profile, leverage need and documentation. The best program for your situation is the one whose path, leverage and asset rules fit your statements. No bank or lender is named or ranked here, and none should be recommended from a list. Compare programs against your own file.
How Underwriting Treats an Addition or ADU Step by Step
An addition or ADU changes nothing about how the loan is sized. Here is the sequence.
1. Equity first, build second. The lender appraises the property as it stands. An unbuilt ADU adds no collateral value, so the cash comes from equity in the existing structure.
2. Leverage caps the loan. On the depletion path, cash-out on a principal residence or second home goes up to 60%. An investment property is also capped at 60% on cash-out. Cash-out proceeds never count as qualifying assets.
3. Assets get counted. Each balance is reduced to the share that counts. Statements are pulled and seasoned.
4. The qualifying test runs. On the qualifier path, eligible assets must equal or exceed the entire loan. On the depletion path, derived income must carry the full housing payment and other debts.
5. Appraisal and rent schedule. The lender orders an appraisal. When rent matters, a rent schedule is added: Form 1007 for a single-family home and Form 1025 for 2-4 units, as shown in HUD Mortgagee Letter 2023-17, which pairs both forms in the ADU context.
6. Net cash is what remains. It is the new loan minus the payoff, costs and any reserves.
Future-value sizing belongs to renovation and construction loans, which underwrite against after-completed value. An asset-based cash-out does not. A new loan sized off today’s appraisal will not rise because the plans look good.
How Assets Are Counted
Percentages below are the share of each balance that counts. The rest is the haircut.
Qualifier path. Brokerage accounts, certificates of deposit, money market and savings count at 100%. Retirement accounts count at 90% under age 59½ and 100% at 59½ or older. Accounts combine. Consider an $800,000 loan backed by $330,000 in brokerage accounts (100% counts $330,000), $300,000 in a 401(k) under 59½ (90% counts $270,000) and $200,000 in savings (100% counts $200,000). Together they count $800,000 of usable assets, so the file is reviewed on assets alone in this illustration. The lender’s own calculation governs.
Depletion path. Cash and CDs count at 100%. Securities count at 80%. Retirement accounts count at 70% at any age. Real-estate equity counts at 60%. Take $1,500,000 in securities (80% counts $1,200,000) plus $300,000 in cash (100% counts $300,000), which makes $1,500,000 usable. Divided by 60 months, that produces $25,000 of monthly qualifying income, which then carries the housing payment and other debts through the debt-to-income test.
Several asset types are not eligible on the depletion path. These include 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. Privately held company stock is not an eligible asset on either path. Cryptocurrency, precious metals, collectibles and pledged or borrowed funds are not published as eligible on either path. The route for any of them is to convert the holding to a seasoned cash balance in a regulated account, with the source reviewed by the lender.
Seasoning and Documents
The assets are documented. This is not a no-documentation loan, and every file is fully underwritten. The borrower provides no traditional personal-income documentation, pay stubs or employment verification, but provides statements.
- Qualifier path: 60 days of seasoning and two months of statements for each qualifying account.
- Depletion path: the oldest statements must be at least 120 days old at application, plus the most recent statement within 45 days. Sale-of-business, inheritance and legal-settlement funds are excused from that seasoning.
- Depletion minimums: 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 depletion is the only income source.
- Credit: 600 minimum on the qualifier path. The depletion path follows the lender’s matrix, and a first-time investor there needs 700. Housing history is 0x30x12, and a housing event needs 4 years of seasoning on the depletion path.
For the build itself, expect the lender to ask for permits and a final inspection or certificate of occupancy. That is a general expectation and it varies by lender.
Reserves and the Debt Test
On the qualifier path, no reserves are required at or below 75% loan-to-value. Above that the lender sets them. No income is documented there, and the review of ability to repay rests on the assets. The depletion path has no published reserve months, and its derived income runs through the debt-to-income test. Asset-derived income can also supplement documented income up to a 45% debt-to-income ratio. When it supplements, the minimum-assets rule is waived.
Which Structure Fits Which Build
| Plan | Typical funding route |
|---|---|
| Attached addition | Cash-out from existing equity, if leverage allows |
| Detached ADU | Separate build funding, then refinance after completion |
| Garage conversion | Cash-out if equity is deep enough, otherwise a renovation loan |
| Buying a home with an ADU | A purchase loan, not cash-out |
Common sequences split the work. Many owners fund the build with a HELOC, a construction or renovation loan, a bridge or cash. They then refinance once the structure is complete and appraised. The refinance then takes out the short-term money against a fresh value that includes the finished unit. When paying off a HELOC, the lender will look at the new payment plus any remaining HELOC balance if proceeds fall short.
Cash-out versus the alternatives:
| Tool | Value basis | Fit |
|---|---|---|
| Asset-based cash-out | Today’s appraisal | Deep existing equity, asset-heavy borrower |
| HELOC | Today’s value | Smaller draws, keeps the first mortgage |
| Renovation loan | After-completed value | Thin equity, larger build |
| Construction loan | After-completed value | Ground-up build, paid in draws |
Where the General Rule Breaks
Unpermitted or non-rentable units. An ADU’s status turns on features such as a separate utility meter, a unique postal address and whether the unit can be legally rented, per Fannie Mae’s Selling Guide. Appraisers treat square footage differently when those features are missing. Expect value credit to follow permits.
Projected rent. Agency rules allow rental income from one existing ADU, but only under their own limits. That is a debt-to-income world and does not govern asset-based files. On the qualifier path, no income is documented at all, so projected rent plays no part.
Large builds on thin equity. If the cap leaves too little cash, the answer is a renovation or construction loan, not a larger cash-out.
Private-company founders. Closely held shares do not count on either path. The documented route is seasoned proceeds from a sale or conversion, plus cash, public securities and retirement accounts at their counting percentages.
Prepayment terms. If the existing loan carries a prepayment charge, add it to the net-cash math.
Who It Fits and Who It Doesn’t
It fits retirees, business sellers, heirs and portfolio households with large documented balances and thin paycheck income, especially with 60% or more equity to draw on. Mind the leverage limits: on the depletion path, cash-out leverage is 60%.
It fits poorly when the equity is thin, the build is large, the funds sit in ineligible holdings, or the assets are fewer than the program minimums. It also fits poorly when the plan relies on projected ADU rent to qualify. A rental-focused investor is better served by a business-purpose rental loan, which is reviewed on the property’s income covering the payment, subject to lender guidelines.
Questions to put to any lender: Is cash-out allowed on this path? What leverage applies to this occupancy? What counts and at what percentage? What seasoning applies? What happens if the appraisal comes in low? Does it want permits before the loan or after?
Key Terms Defined
Asset qualifier path: drives lender review with eligible assets that equal or exceed the loan amount, with no income documented.
Asset depletion path: converts usable assets, divided by 60 months, into monthly qualifying income.
Haircut: the part of a balance that does not count toward qualifying.
Seasoning: the period funds must sit in an account before they count.
Cash-out refinance: a new first mortgage that pays off the old one and returns the difference.
After-completed value: the appraised value assuming the work is finished.
Frequently Asked Questions
Can a cash-out refinance pay for an addition or ADU?
Yes, but only from equity that exists before the build. The loan sizes on today’s appraisal, so an unbuilt unit adds nothing. Where equity is thin, a renovation or construction loan that underwrites on after-completed value is the usual alternative.
Do big banks offer asset-based cash-out refinances?
Rarely. The product sits mostly with specialty lenders reached through a broker, whose network matches your statements, property and leverage to the program that fits.
Which path works for cash-out?
The depletion path publishes cash-out leverage: 60% on a principal residence, second home or investment property, subject to underwriting. The qualifier path’s cash-out terms are set by the lender and not published.
Does my private company stock count?
No. Seasoned cash from a sale or conversion, public securities and retirement accounts count at their stated percentages.
Can the new ADU’s rent help me qualify?
No. The qualifier path documents no income, and the depletion path uses derived income from assets. Agency rules on ADU rent belong to a different, income-based system.
A deeper walk-through of investment-property equity extraction lives in Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges bank statement, P&L-only, 1099-only and asset-based home financing in 16 states through wholesale lenders, on primary residences, second homes and investment properties. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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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. HUD Mortgagee Letter 2023-17
2. Fannie Mae Selling Guide 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 to Build an Emergency Fund · Can You Get Approved for an Asset-Based Cash-Out Refinance With No Income Verification?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.