Conventional Loan Income Rules for a Retiree Using Assets

The Quick Read: Retirees can qualify on a conventional loan without a paycheck. Lenders count income you already receive, such as Social Security, a pension, an annuity, or regular retirement-account withdrawals. They can also convert a large retirement balance into a monthly income figure, even if you have not started drawing from it. Which route fits depends on the agency path, your age, how the home will be used, and how much cash goes into the deal. Everything here is subject to lender guidelines and full file review.

Key Terms Defined

• Asset depletion: a qualifying method that spreads an account balance over a set number of months to create a monthly income figure. It is a way of counting income, not a separate loan.
• DTI (debt-to-income ratio): your monthly debts compared with your gross monthly income.
• LTV (loan-to-value): the loan amount as a percentage of the home’s value.
• Continuance: proof that an income stream will last, usually at least three years.
• Gross-up: raising a nontaxable income amount to its taxable-equivalent so it compares fairly with taxable pay.
• Agency: Fannie Mae or Freddie Mac, the two companies whose rules set the conventional standard.

Do You Need a Paycheck for a Conventional Loan?

No. Lenders must make a reasonable, good-faith decision that you can repay. The CFPB’s Ability-to-Repay compliance guide says a lender may consider current or reasonably expected income or assets, and that income need not come from full-time or salaried work. The federal rule sets no specific DTI cap. Fannie Mae and Freddie Mac decide how assets turn into qualifying income, and lenders add their own limits on top.

On the wholesale conventional programs I arrange files through, a 620 decision score is the usual starting point. Most files follow the automated underwriting finding, with a total ratio ceiling of 50%. Manually underwritten loans run tighter, at 36% or 45%, depending on reserves and score. Those numbers matter for retirees because asset income lands in the DTI math, and a modest monthly figure can decide a file.

Three Routes to Qualifying Income

A retiree has three conventional routes. You can mix them.

Route A: income you already receive. Pensions, annuities, Social Security, and retirement-account withdrawals you already take fall here. Fannie Mae’s annuity, pension and retirement income policy asks for proof of current receipt. That can be a payer statement, an award letter, bank statements, a signed tax return, a W-2, or a 1099. Fixed payments need no minimum history. Variable withdrawals need a 12-month history of receipt.

Route B: Fannie Mae’s employment-related assets. This is the formal asset-depletion route for retirement accounts and certain lump sums. You do not have to be drawing on the account yet.

Route C: Freddie Mac’s accumulated assets as income. Freddie Mac has rewritten this rule, and the details are covered below.

How Retirement Withdrawals and Pensions Are Documented

Income from an annuity or a retirement-account distribution must be expected to continue for at least three years. Fannie Mae’s general income policy applies the same test to any income that depends on using up an asset account. If your documents do not state continuance, the lender decides using alternative documentation.

One detail is in flux. Fannie Mae’s March announcement restructured its income chapter and ties the continuance measurement to the note date, while the policy page itself still refers to the application date. Ask your loan officer which measure the lender applies. Either way, three years is the benchmark.

Income that starts after closing is allowed. An annuity or pension that begins on or before your first payment date is documented with a benefit statement showing the type, amount, frequency, and start date.

Social Security has one extra wrinkle. Fannie Mae’s SEL-2023-11 lets lenders treat 15% of Social Security income as nontaxable without further documentation, then gross that portion up. Only the nontaxable part qualifies for the gross-up. You cannot gross up the whole check.

The Asset-Depletion Route: How It Works Step by Step

Fannie Mae’s employment-related assets policy is the main conventional path for a retiree with big balances and no draw history. Here is how a file moves through it.

1. Pick the path. Already drawing income? Use Route A. Large balances and no draw history? Use the asset route.

2. Confirm eligibility. Fannie Mae’s rule covers purchases and limited cash-out refinances on a principal residence or second home. Investment properties are out. Assets must be owned individually by the borrower, or the co-owner must be a co-borrower.

3. Document the assets. Statements must meet the agency’s age-of-documents rules. You need unrestricted access, meaning the right to request the full account. A lump-sum retirement or severance package is generally documented with an employer letter, a 1099-R, and a deposit to a verified account.

4. Net the assets. If a full withdrawal today would trigger an early-withdrawal penalty, that penalty (after transaction costs) comes off first. Cash you will use for the down payment and closing costs also comes out of the pool. Some lenders also subtract required reserves.

5. Convert to monthly income. The net amount is spread over a set number of months. For this Fannie Mae route, think of it as spread over the loan term. A shorter term yields more qualifying income, but it also raises the payment, so the loan must work as a whole. Your lender confirms the exact math.

6. Add it to DTI. The monthly figure sits beside your pension, Social Security, and other income. Your total monthly obligations, including the new housing payment, are compared with that total.

7. Underwrite. The file runs through Desktop Underwriter or manual review. Fannie Mae’s underwriting overview describes the evaluation as equity investment, credit history, liquid reserves, and reliable recurring income.

8. Appraise. The appraisal sets the value, and value sets your LTV. LTV is a gating rule on this route.

The Leverage and Age Rule

Under this route, the maximum LTV, combined LTV, and home-equity combined LTV is 70%. It rises to 80% if the asset owner is at least 62 at closing. That higher cap dates to Fannie Mae’s 2018 announcement, which raised the limit from 70% to 80% for owners 62 and older.

On a purchase, that means a larger down payment than the standard programs ask for. My standard purchase envelope runs to 95% LTV on a principal residence, and 97% for a first-time buyer. The asset route is much tighter. An owner who is at least 62 at closing can go to 80% LTV, which means 20% down. Under the asset route, a younger owner is held to the 70% LTV cap, which means 30% down. Every figure here varies by lender and program, and guidelines, property type, leverage, and credit profile all apply.

If the asset is jointly owned, every owner must be a borrower. The borrower using the income must be at least 62 at closing.

Where Freddie Mac Differs, and Why Lenders Disagree

Freddie Mac handles this under “accumulated assets as income.” Its Bulletin 2026-10 revises that section. The new rules take effect for settlement dates on or after February 3, 2027, and lenders may adopt them immediately.

That creates a moving target. Between now and the mandatory date, two lenders can give different answers on the same file. Reports from the industry describe a shorter conversion period, fewer age limits, an asset-seasoning requirement, a minimum asset value, and wider property eligibility, though these details are not confirmed here. Read the Freddie Mac bulletin yourself, and ask your lender which version it uses. Before Bulletin 2026-10, depository and securities accounts required an owner aged 62 or older, per Freddie Mac’s training materials.

The takeaway is simple. Treatment differs by agency, by occupancy, and by lender timing. Your broker should run the file against both.

Where the General Rule Breaks

These are the edge cases I see most often.

• Ordinary savings and brokerage balances. Fannie Mae’s asset route is limited to employment-related assets, such as retirement accounts and eligible lump sums. Regular bank or brokerage balances generally do not qualify under it. Interest and dividend income from those accounts may still count under a separate Fannie Mae policy.
• Accounts under 59½. A penalty is subtracted from the pool. Retirement accounts are generally restricted by the IRS until that age.
• Joint ownership. Both owners must be on the loan.
• Second homes. Occupancy decides the leverage. Second homes can go to 90% on the standard programs, but the asset route has its own 70% and 80% caps.
• Moving rules. If a loan fails the asset route’s parameters, the assets may still count as interest and dividend income, or as ongoing retirement income.
• Jumbo balances. A lender has noted that Freddie Mac’s new rule is excluded from certain jumbo automated underwriting. Ask early if your loan is large.

Mistakes and Myths That Stall Retiree Files

Here are the myths I hear most.

• “I have to start withdrawing first.” No. Undrawn retirement balances can count under the asset route.
• “Any savings count as income.” Not under Fannie Mae’s asset route, as noted above.
• “The age rule is 62 everywhere.” At Fannie Mae, 62 affects the LTV cap. At Freddie Mac, the age rule has historically applied to some account types and may be changing.
• “There’s a national DTI limit.” There is not. Agency and lender underwriting set the limits.
• “Qualifying income is what I’ll really withdraw.” It is not. Qualifying income is a hypothetical conversion. The lender needs a reasonable basis to believe you can repay, so check the real monthly budget against the payment before you commit.

A subtler trap is the cash-to-close tradeoff. A bigger down payment shrinks the asset pool, so qualifying income drops. The two decisions are linked. Run both before you commit.

A Retiree Scenario in Plain Words

Picture a married couple in their mid-60s. The husband draws Social Security and a small pension. The wife has a large IRA she has never touched. They want to buy a home as their principal residence and put down a sizable share of the price.

The pension and Social Security go in under Route A, with award letters. The Social Security gross-up applies to 15% of it, absent other documentation. The wife’s IRA goes through the asset route, but she must be a borrower, and she must be at least 62 at closing for the 80% LTV cap. The lender subtracts any penalty and the cash headed to closing, then spreads what remains over the loan term. That monthly figure joins the pension and Social Security in the DTI calculation. If the total stays inside the automated finding’s 50% ceiling, the file proceeds to full review. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

If they shrink the down payment, the qualifying income rises, but the LTV climbs toward the cap. If they choose a shorter term, income rises again, but so does the payment. The best structure comes from running those levers together, not one at a time.

Good file prep also helps. A documentation checklist for retirees usually includes:

• Two most recent account statements, showing full ownership and access
• Award letters for Social Security, pensions, and annuities
• A 1099-R and bank deposit for any lump sum
• Proof of the three-year continuance, where applicable
• Traditional personal-income documentation, if the lender asks for it

For a related look at the same income logic on a refinance, see Lendmire’s piece Cash-Out Refinance DTI for a Retiree Using Assets as Income.

Is Conventional the Right Fit?

Sometimes it is not. A retiree with strong pension and Social Security income may not need the asset route at all. A retiree with large balances in non-retirement accounts may find the conventional asset route does not reach them. A borrower with a short account history, or who needs higher leverage than the asset route allows, may do better elsewhere.

The way to decide is to line up three things: how much of your income is already flowing, how much cash you will bring to closing, and your age at closing. If you want to see what these programs ask of a file, start with Lendmire’s conventional loan programs. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.

If you are buying a home and want to see whether a conventional loan fits your file, Lendmire can help you compare the options and what each one asks of the file.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. CFPB Ability-to-Repay and Qualified Mortgage Small Entity Compliance Guide

2. Fannie Mae Selling Guide B3-3.4-03: Annuity, Pension, or Retirement Income

3. Fannie Mae Selling Guide B3-3.1-01

4. March announcement

5. SEL-2023-11

6. Fannie Mae Selling Guide B3-3.4-06: Employment-Related Assets as Qualifying Income

7. Fannie Mae Selling Guide B3 Underwriting Borrowers

8. Fannie Mae Announcement SEL-2018-08

9. Freddie Mac Guide Bulletin 2026-10

10. Freddie Mac’s training materials