Many individuals have significant savings or investments but may lack steady employment income, making mortgage qualification difficult. Asset Dissipation Income offers a solution by allowing lenders to calculate a notional monthly income based on these assets.
How Asset Dissipation Income Works
Lenders calculate this by taking the value of your eligible assets—such as savings, stocks, bonds, and vested retirement accounts—subtracting funds allocated for down payment and closing costs, and dividing the remainder by the loan term in months (commonly 360 months for a 30-year mortgage).
For example, if you have $500,000 in eligible assets and are applying for a 30-year mortgage, the calculation would be: ($500,000 – down payment) ÷ 360 = monthly income used for qualification.
Stocks and mutual funds often undergo a “haircut” to account for market fluctuations, typically around 30%, meaning lenders consider 70% of their market value. Retirement accounts generally require the borrower to be at least 59½ years old or demonstrate unrestricted access to avoid penalties.
Who Benefits from Asset Dissipation Income?
- Retirees: Converting savings into qualifying income without employment earnings.
- Self-Employed and Entrepreneurs: Individuals with fluctuating income but substantial assets.
- High-Net-Worth Individuals: Those with significant assets but low reported income.
- Job Seekers or Career Transitions: Individuals with savings or severance packages aiming to qualify for a mortgage.
Important Guidelines
Fannie Mae and Freddie Mac offer widely adopted standards. Both accept similar asset types and apply comparable adjustments. For retirement accounts, age and access are key considerations. Check specifics with your lender to ensure compliance with their guidelines.
| Guideline | Fannie Mae | Freddie Mac |
|---|---|---|
| Eligible Assets | Savings, stocks, bonds, vested retirement accounts | Similar |
| Haircut on Market Assets | Typically 30% haircut (values adjusted to 70%) | Typically 30% haircut |
| Retirement Account Age | Must be 59½ or have documented access | Must have unrestricted penalty-free access |
| Loan Term Used | Usually 360 months (can be shorter for some borrowers aged 65+) | Usually 360 months |
(See Fannie Mae Selling Guide – Other Sources of Income for detailed standards.)
Example Scenario
Brenda, age 65, retired with $800,000 in a brokerage account, wants to buy a condo costing $3,500 monthly. She receives $2,000 Social Security monthly but needs more qualifying income. Her lender applies a 70% haircut: $800,000 × 0.70 = $560,000. Divided by 360 months, this yields $1,555 monthly asset dissipation income. Combined with Social Security, $2,000 + $1,555 = $3,555, allowing mortgage approval.
Tips and Common Mistakes
- Not all lenders offer asset dissipation income calculations; seek those experienced in this method.
- Always subtract down payment and closing costs before calculating income.
- You don’t need to liquidate your assets; this is a hypothetical income calculation only.
Asset Dissipation Income is a useful financial strategy to leverage your accumulated wealth when traditional income sources are limited, helping you navigate mortgage qualification with greater confidence. For related information, see our article on Net Effective Income.
