How to Calculate Fannie Mae Asset Depletion & Age 62 Rule (2025)

Fannie Mae asset depletion is a mortgage qualification method that allows you to use your savings and investments as qualifying income instead of traditional pay stubs. It allows you to demonstrate to  lenders that while you may not have a regular paycheck, you possess substantial financial reserves built over years of disciplined saving and investing. 

This strategy is helpful for retirees and people who are asset-rich but whose wealth doesn't translate to high reported income.

This guide will help you walk through the exact steps to calculate your asset depletion income, why turning 62 is so significant for these loans, which assets count (and which don't), and real examples that show how people just like you have successfully bought homes using their financial reserves. 

What Is Fannie Mae Asset Depletion? 

Fannie Mae officially terms this approach the asset depletion method; however, you’ll see most mortgage professionals referring to it as assets as income or asset depletion loans. 

Don’t get caught up in terminology, though. 

The Fannie Mae asset depletion simply allows you to convert your accumulated wealth into a monthly income for qualification purposes. Most lenders will resort to this method when you have substantial liquid assets but lack sufficient regular income to meet traditional debt-to-income requirements. This is common with retirees and people with irregular self-employment income. 

However, lenders won’t approve an asset depletion for cash-out refinances to extract home equity or purchase an investment property. This method specifically applies to purchases and limited cash-out refinances on properties you’ll actually occupy. 

When You Can Use Fannie Mae Asset Depletion 

Before getting into the numbers, make sure to check whether you’re eligible to use this method. 

Loan Purpose 

Asset depletion calculations only apply to home purchases and limited cash-out refinances. This is so you utilize your assets for acquiring primary residences or second homes instead of extracting significant equity for unrelated financial purposes.

Occupancy Requirements

Your property must serve as either a primary residence or a second home. Investment or rental properties will require traditional income verification. 

Here’s a helpful checklist to follow before moving forward: 

The Asset Depletion Calculation: Step-by-Step Formula

Step 1: Identify Your Eligible Assets

Start with assets you can actually access when needed. This includes:

• Savings 
• Checking accounts 
• CDs
• Mutual funds
• Stocks
• Bonds
• Retirement accounts that allow withdrawals

The key requirement is accessibility. You need to be able to convert these assets to cash without major obstacles.

Step 2: Subtract Early Withdrawal Penalties

If you're under 59½ and planning to use retirement funds, subtract the 10% early withdrawal penalty from your total. 

Traditional IRAs and 401(k)s typically carry this penalty, though some exceptions exist for first-time homebuyers. 

Step 3: Set Aside Required Transaction Funds

From your total eligible assets, subtract money needed for your down payment, closing costs, and reserves. Lenders typically require you to keep 2-6 months of mortgage payments in reserve after closing. What remains becomes your net available assets for the income calculation.

Step 4: Apply the Simple Formula

Here’s a simple formula to follow: 

Net Available Assets ÷ Loan Term (in months) = Monthly Asset Income

This monthly income figure is what lenders use in your debt-to-income calculations.

Step 5: Choose Your Loan Term Strategically

Your loan term choice will directly impact your qualifying income:

30-year loan (360 months): Creates the lowest monthly income but keeps your actual mortgage payments manageable. This is good for moderate asset levels.

25-year loan (300 months): Boosts your calculated income, which can help if you're close to qualifying but need a bit more income on paper.

20-year loan (240 months): Maximizes your monthly income calculation, good if you have substantial assets and want to pay off your mortgage faster.

Age 62 Rule & LTV Caps

Default Cap vs Age 62 = 80% LTV 

Fannie Mae limits the LTV to 70% if the borrower is below age 62. 

If you’re 62 or older, the maximum LTV is allowed up to 80%. This distinction recognizes that older borrowers typically have more stable financial situations and reduced income volatility compared to younger asset depletion users.

Joint Ownership 

When multiple borrowers apply for asset depletion loans, the Age 62 rule requires careful analysis of co-borrower alignment. If at least one borrower has reached age 62, the loan may qualify for 80% LTV treatment, provided that the borrower has sufficient asset ownership to support the income calculation.

How LTV Caps Limit Maximum Loan Amount

The LTV restriction directly impacts borrowing capacity by limiting loan amounts to 70% or 80% of property value. 

For example, a $500,000 home would support a maximum loan of $350,000 (70% LTV) for borrowers under 62, versus $400,000 (80% LTV) for borrowers 62 and older, representing a $50,000 difference in purchasing power.

Eligible vs Ineligible Assets for Fannie Mae Asset Depletion

Eligible Asset Examples

1. Retirement Accounts with Access

401(k) plans, traditional and Roth IRAs, SEP-IRAs, and Keogh retirement accounts, where you can demonstrate unrestricted withdrawal capability. Distribution letters from plan administrators help verify accessibility.

2. Severance and Lump-Sum Payments

Documented employment-related severance packages and pension distributions qualify when borrowers provide employer verification and tax documentation showing the income source.

Ineligible Asset Examples

1. Ordinary Cash Unless Properly Sourced

Regular savings and checking account balances require proper sourcing documentation to ensure funds aren't borrowed or temporarily placed for qualification purposes.

2. Stock Options and RSUs

Unvested stock options, restricted stock units, and employee stock purchase plans typically remain ineligible due to access limitations and valuation complexities.

3. Cryptocurrency Holdings

Digital assets generally don't qualify for Fannie Mae asset depletion calculations due to volatility concerns and documentation challenges, though this area continues evolving.

Trust Timing Considerations

Trust distributions may qualify for asset depletion treatment when borrowers can document receipt within 12 months of the loan application, provided the trust terms allow continued distributions and proper legal documentation exists.

Worked Examples: Calculating Fannie Mae Asset Depletion Income

Here’s how real-world examples can help you put the asset depletion calculations into practice. 

Example A: Borrower Under Age 59½ 

David, age 55, has $800,000 in a 401(k) and wants to purchase a $400,000 home with 20% down.

Here’s what the calculation looks like: 

• Total 401(k) assets: $800,000
• Less 10% early withdrawal penalty: -$80,000
• Less down payment (20% of $400,000): -$80,000
• Less closing costs and reserves: -$20,000
• Net available assets: $620,000

$620,000 ÷ 360 months = $1,722 monthly asset income

Since he’s under 62, the maximum LTV is 70%, so he could potentially buy up to $571,000.

Example B: Borrower Age 62+ 

Donna, age 65, has $1,200,000 in combined retirement and investment accounts, purchasing a $600,000 home.

Here’s what the calculation looks like: 

• Total eligible assets: $1,200,000
• No early withdrawal penalties (over 59½)
• Less down payment (20% of $600,000): -$120,000
• Less closing costs and reserves: -$30,000
• Net available assets: $1,050,000

$1,050,000 ÷ 300 months = $3,500 monthly asset income

At 65, Robert qualifies for 80% LTV, potentially allowing him to purchase homes up to $750,000.

Example C: Joint Owners

Debby (age 59) and David (age 63) jointly own $900,000 in assets and want to buy a $500,000 home.

Calculation considerations:

• Since David is over 62, they qualify for 80% LTV treatment
• Combined asset ownership supports the income calculation
• No early withdrawal penalties needed if accessing David’s retirement accounts

$900,000 - $150,000 = $750,000 $750,000 ÷ 360 months = $2,083 monthly asset income

The 80% LTV option (due to David’s age) reduces their required down payment from $150,000 to $100,000, preserving more assets for the income calculation.

Documentation Checklist for Fannie Mae Asset Depletion

It’s important to have proper documentation forms for successful asset depletion loan application, since missing or incomplete paperwork leads to delays and even denials. 

Make sure you’ve got the following ready on hand: 

Asset Ownership and Value Documentation

• Current account statements for all claimed assets (typically, the most recent 2-3 months)
• Investment account statements showing asset values and accessibility
• Retirement account statements with distribution options clearly indicated
• Letters from financial institutions confirming account ownership and withdrawal procedures

Transaction-Specific Documentation

• Purchase agreement showing exact sales price and terms
• Good faith estimate detailing closing costs and required reserves
• Down payment source documentation proving funds availability
• Asset liquidation timeline if assets need conversion to cash

Regulatory and Tax Documentation

• Tax returns for the previous two years showing asset-related income or withdrawals
• Distribution election forms for retirement accounts
• Penalty calculation worksheets for early withdrawals (if applicable)
• Trust documents and distribution schedules (if utilizing trust assets)

Common Mistakes That Trigger Asset Depletion Denials

Here are some common mistakes you need to steer clear of to avoid unnecessary delays and rejections in your loan process: 

1. Asset Classification Errors

The most common mistake involves including ineligible assets in your calculation. Cryptocurrency, unvested stock options, and assets with significant access restrictions frequently get incorrectly included, which leads to recalculation delays.

2. Penalty Miscalculations

Borrowers under 59½ often underestimate early withdrawal penalties or fail to account for state tax implications on retirement distributions. This results in insufficient net assets for qualification.

3. Scope Limitation Oversights

Attempting to use asset depletion for cash-out refinances exceeding limited cash-out parameters, or applying this method to investment property purchases, represents a fundamental misunderstanding of program limitations.

4. Age Rule Misapplication

In joint applications, confusion about which borrower's age determines LTV limits can lead to incorrect loan structuring and potential qualification issues. 

FAQs: Fannie Mae Asset Depletion Calculation & Age 62 Rule

What is the 5% rule for Fannie Mae?

The 5% rule typically refers to the minimum borrower contribution requirement for certain loan programs. However, this doesn't specifically apply to asset depletion calculations. For asset depletion loans, you'll need to verify specific down payment requirements based on your loan-to-value ratio and creditworthiness.

What is the formula for mortgage calculation?

The basic formula is: 

Net Available Assets ÷ Loan Term in Months = Monthly Asset Income

This calculated income then gets used in standard debt-to-income ratio calculations along with your other monthly obligations.

How does Fannie Mae work?

Fannie Mae, a government-sponsored enterprise, purchases mortgages from lenders and provides liquidity to the mortgage market. When lenders follow Fannie Mae guidelines, they can sell approved loans to Fannie Mae. 

What are Fannie Mae and Freddie Mac?

Both Fannie Mae and Freddie Mac are government-sponsored enterprises that purchase mortgages from lenders. However, they operate independently and have slightly different guidelines. 

Fannie Mae handles conventional loans from small lenders. Freddie Mac, on the other hand, works with larger financial institutions. 

How does Fannie Mae calculate asset depletion?

Asset depletion is calculated by taking your eligible liquid assets, subtracting early withdrawal penalties and funds needed for the transaction, and then dividing the remainder by your loan’s amortization term in months. This helps you generate a monthly income figure. 

What are the rules for Freddie Mac asset depletion?

While the basic concept of Freddie Mac is similar to that of Fannie Mae’s, there are a few differences, such as: 

• Asset eligibility
• Penalty calculations 
• Documentation requirements 

Make sure you verify which agency’s guidelines your lender follows to avoid surprises later on. 

How do you calculate asset depletion on a mortgage?

To calculate asset depletion on a mortgage, here’s what you need to do: 

• Start with the total eligible assets 
• Subtract any early withdrawal penalties
• Subtract funds for down payment and reserves 
• Divide the remained by your loan term in months 

This leaves you with a figure that represents your monthly asset income. 

What is the difference between asset depletion and asset utilization?

Asset depletion converts assets to monthly income by spreading them over the loan term. Asset utilization, on the other hand, refers to using assets as reserves or down payment sources without converting them to ongoing income. 

Next Steps

Now that you understand how Fannie Mae asset depletion works, it’s time to evaluate whether or not this approach aligns with your current financial situation. It’s important to understand that while asset depletion opens homeownership doors for many asset-rich borrowers, it's not always the optimal financing strategy.

The key to making the best decision lies in thorough preparation, accurate calculations, and working with a professional who understands both the opportunities and limitations of Fannie Mae asset depletion.