The Quick Read: On an asset-based file, the underwriter reviews your file on your documented assets and the property, not on the income line of your return, so a tax loss is not the number being tested, though credit, appraisal, title and statements are all still reviewed, subject to underwriting.
- On the asset qualifier path, eligible assets must cover the entire loan, and no employment or income is documented.
- On the asset depletion path, usable assets divided by 60 months become qualifying income that runs through the debt-to-income test.
- A borrower is qualified on one path at a time, and the two sets of figures are never blended.
- Cash-out proceeds never count as qualifying assets on the depletion path.
- No traditional personal-income documentation, pay stubs or employment verification are needed, but every file is fully underwritten and every asset is documented with statements.
Why a Loss Shows Up on Your Return
A tax loss and a weak financial position are not the same thing. Many owners of rentals and closely held businesses carry large balances while their returns show little or negative income.
The usual cause is the deductions themselves. IRS Publication 527 explains that rental income and expenses are reported on Schedule E, with depreciation entered property by property. Depreciation is a non-cash deduction. It can turn a property that pays its own way into a loss on paper. The same publication covers the passive-loss limits that apply to rental losses.
Conventional underwriting reads that return as the borrower’s income, so a loss can shrink or erase qualifying income. Asset-based programs take a different starting point. They ask what you own, how long it has been in your accounts, and whether it supports the loan.
Tax treatment varies; consult a qualified professional.
Which Borrower Fits Which Path?
The asset-based mortgage programs placed through the Lendmire network suit a cash-heavy, income-light profile. Think of retirees, sellers of a business, recipients of an inheritance or settlement, early-retired professionals and households living off a portfolio. Their balances are large and their documented income is not.
Across the wholesale network, the first decision is which of two paths fits. Lendmire’s asset-based mortgage programs are offered through select lenders and are subject to underwriting.
| Factor | Asset qualifier path | Asset depletion path |
|---|---|---|
| Core test | Assets cover the whole loan | Assets become monthly income |
| Income documented | None | Derived from assets |
| Debt-to-income test | Not run on income | Yes, on derived income |
| Loan size | Up to $4,000,000 | $125,000 to $3,500,000 |
| Credit | 600 minimum score | The lender’s matrix |
| Seasoning | 60 days, two months of statements per account | Statements 120 days old plus one within 45 days |
If your assets are large relative to the loan, the qualifier path is cleaner. If your assets are solid but smaller than the loan, converting them to income may be the only way the numbers work.
How Underwriting Treats the Loss, Step by Step
On both paths, the return is simply not the income document. Here is the sequence the file follows.
1. Purpose and occupancy. The lender confirms whether the loan is on a principal residence, a second home, or an investment property. That choice sets the available path and leverage.
2. Application and credit. Credit is pulled and reviewed. The qualifier path has a 600 minimum score. The depletion path follows the lender’s score and loan-amount matrix, and a first-time investor on that path needs 700. 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.
3. Asset documentation. Statements prove each account. Balances are then credited at the percentages for the path, as shown below.
4. Seasoning check. Funds that just appeared draw questions. The lender wants to see where money came from and how long it has been there.
5. Qualification test. On the qualifier path, usable assets must equal or exceed the entire loan. On the depletion path, usable assets divided by 60 months must carry the full housing payment and other debts.
6. Property review. An appraisal sets value, and title is reviewed for liens. Value sets the leverage ceiling.
7. Leverage and cash-out sizing. The loan is capped by the property’s leverage limit for that path and transaction.
Notice what is missing. The tax return is not in the sequence. Credit, assets, property and title are.
What Counts as an Asset (and What Doesn’t)
The share that counts is different on each path. Never mix the two columns.
| Asset | Qualifier path counts | Depletion path counts |
|---|---|---|
| Brokerage accounts | 100% | Securities at 80% |
| Certificates of deposit | 100% | 100% |
| Money market and savings | 100% | Cash accounts at 100% |
| 401(k) and IRA | 90% under 59½, 100% at 59½ or older | 70% at any age |
| Real-estate equity | Not listed | 60% |
Accounts combine on the qualifier path. On the depletion path, the part that does not count is 20% of securities and 30% of retirement balances.
Several asset types are not eligible. Privately held company stock is not an eligible asset on either path. A founder or shareholder with a large closely held stake needs a documented route, which is a sale or buyout converted into a seasoned cash balance, plus any public securities and retirement accounts held at their percentages.
On the depletion path, these are also excluded: 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. Cryptocurrency, precious metals, collectibles, pledged or borrowed funds and business accounts beyond your ownership share are not published as eligible on either path. The route is converting them to a seasoned cash balance in a regulated account, with the source reviewed by the lender.
A Worked Example With a Loss on the Return
Here is how the qualifying math runs on each path. The figures are illustrative, and the lender’s own calculation governs.
Qualifier path. Picture an $800,000 loan. The borrower holds $330,000 in brokerage accounts (100% counts, so $330,000), $300,000 in a 401(k) while under 59½ (90% counts, so $270,000), and $200,000 in savings (100% counts, so $200,000). That totals $800,000 of usable assets, which equals the loan. The file is reviewed on assets alone, subject to underwriting. Business losses on the return never enter the test.
Depletion path. Say a retired business owner holds $1,500,000 in securities (80% counts, so $1,200,000) and $300,000 in cash (100% counts, so $300,000). Usable assets are $1,500,000. Divided by 60 months, that is $25,000 of monthly qualifying income. That income then carries the housing payment and other debts through the debt-to-income test.
In both cases, the loss on the return changes nothing, because the return is not part of the calculation. The assets, their seasoning and the property are.
Asset-derived income may also supplement documented income, up to a 45% debt-to-income ratio. In that case the return is part of the file, so a borrower with a real loss and strong assets usually gets a cleaner result by qualifying on assets alone.
Cash-Out Is Different From a Purchase
A cash-out file borrows against equity you already have, so leverage is tighter than on a purchase. The two paths treat this differently.
On the qualifier path, a refinance goes up to 75% loan-to-value on a principal residence or second home. Whether cash-out proceeds are allowed there, and at what leverage, is set by the lender and is not published. A borrower who wants cash out should ask for that answer before planning around it.
On the depletion path the limits are published. Cash-out is up to 60% on a principal residence or second home, and also up to 60% on an investment property. A purchase or rate-and-term refinance can go up to 80% on a principal residence or second home and up to 65% on an investment property. Cash-out proceeds never count as qualifying assets, so you cannot borrow the cash and then use it to meet the asset test.
Reserves also differ. The qualifier path requires none at or below 75% loan-to-value, and above that the lender sets them. The depletion path has no published reserve months.
The depletion path has a minimum-assets rule. Qualified assets must be 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. When assets supplement documented income, that rule is waived.
Where the General Rule Breaks
The rule is that the loss does not matter. These edge cases can still trip a file.
The loss comes from a rental you are refinancing. A loan on an investment property runs only on the depletion path, and the loan is business-purpose. The CFPB’s Regulation Z § 1026.3 exempts credit extended primarily for a business or commercial purpose from Regulation Z’s consumer-credit rules. If the purpose is personal, the analysis changes, so the lender confirms the purpose of the loan.
You want to use the property’s rent as the story. Asset-based programs do not underwrite rent. If rent coverage is the stronger case, a business-purpose loan that qualifies primarily on property-level rental income covering the payment may fit better, subject to lender guidelines. Lendmire’s piece Bank Statement Cash-Out Refinance Requirements When Your Tax Returns Show a Loss covers the alternative for borrowers whose deposits tell a better story than their returns.
Your wealth is in a private company. Privately held stock does not count on either path, so a large paper net worth can still leave you short on usable assets.
Your assets are new. Fresh deposits are reviewed for source. On the depletion path, sale-of-business, inheritance and legal-settlement funds are excused from the 120-day statement-age rule, but the source is still documented.
You have a recent housing event. A foreclosure or similar event needs 4 years of seasoning on the depletion path.
Which Path Wins Over the Others?
Match the product to the problem. A cash-flow problem points to a bank statement program for borrowers who document income with deposits. A wealth problem points to asset-based. Conventional and full-doc jumbo programs set their own rules, and those rules read the return directly.
| Situation | Likely better fit |
|---|---|
| Strong monthly deposits, weak returns | Bank statement program |
| Large liquid balances, little documented income | Asset-based mortgage |
| Rental that covers its own payment | Business-purpose rental financing (DSCR) |
| Strong documented income | Conventional or full-doc jumbo |
Lendmire’s article Best Asset-Based Cash-Out Refinance Program When Your Tax Returns Show a Loss goes deeper on matching a program to a profile. The best program for your situation depends on property type, credit, leverage need and how your assets are held. Lendmire is a broker, not a lender, and shops a network of wholesale lenders, so the match starts with your statements and goals.
What Stalls These Files
In day-to-day placement work, these files stall for the same few reasons.
- Unseasoned money. Large recent transfers between your own accounts need a paper trail.
- Stale or missing statements. The qualifier path wants two months per account. The depletion path wants a statement 120 days old and one within 45 days.
- Counting the wrong assets. Private stock, crypto and cash on hand do not count. Convert them to a seasoned balance in a regulated account first.
- Planning around cash-out proceeds. Borrowed funds do not qualify you for the same loan.
- Mixing the two paths. Pick the path that fits before quoting yourself a number.
Because this is a consumer mortgage on a principal residence or second home, TRID disclosures apply. Program availability is limited to the lender’s licensed states. Consumer mortgage lending is available in Alabama, California, Colorado, Florida, Georgia, Indiana, Michigan, Montana, New Mexico, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia and Washington.
Key Terms Defined
Asset qualifier path: the route where eligible assets, after the credit percentages, must equal or exceed the entire loan.
Asset depletion path: the route where usable assets divided by 60 months become monthly qualifying income.
Usable assets: the share of each account balance that counts after the program’s percentages.
Seasoning: the time funds have sat in your account, which shows the money is yours.
Debt-to-income ratio: your monthly debts, including the new housing payment, compared with qualifying income.
Frequently Asked Questions
Does a loss on my tax return stop an asset-based cash-out refinance?
No. The return is not the income document on either path, so the loss is not the test. Credit, assets, the property and title are still reviewed, and approval is subject to underwriting.
Do I need tax returns, pay stubs or employment verification?
None of those are needed. You do need statements for each account you rely on, so the file is fully underwritten even though income is not documented on the qualifier path.
Can I use my cash-out proceeds to qualify?
No. On the depletion path, cash-out proceeds never count as qualifying assets. Qualifying assets must already be yours and seasoned.
Does my private company stock count?
No. A sale or buyout converted into a seasoned cash balance can count, along with public securities and retirement accounts at their percentages.
Which path fits me if my balances are large but smaller than the loan?
The depletion path is the likelier fit. It converts usable assets into income and tests it against your debts, with the lender’s matrix setting credit requirements.
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.
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 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. IRS Publication 527, Residential Rental Property
2. CFPB Regulation Z § 1026.3, Exempt transactions
This article is part of Lendmire’s asset-based mortgage program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Asset-Based Cash-Out Refinance Lenders When the Property Is Owner-Occupied · Can You Get Approved for an Asset-Based Cash-Out Refinance Using a 529 Plan? · Best Asset-Based Cash-Out Refinance Program on One Income
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.