Retirement Funds as Income to Qualify for a Home Mortgage Loan

Using Retirement Funds As Income

Qualifying for a home mortgage loan can sometimes be a challenge, that’s why we use the funds that are currently in your retirement accounts as mortgage loan income to help you qualify for a home mortgage loan even though you may not be currently receiving distributions from your retirement account.

Conventional Loan Retirements As Income Requirements

  • Assets used for the calculation of the monthly income stream must be owned individually by the borrower, or the co-owner of the mortgage loan.
  • Assets must be liquid and available to the borrower or co-borrower.
  • For 401(k) or IRA, SEP, Keogh retirement accounts – the borrower must have unrestricted access to the funds and can only use the accounts if a monthly distribution has not already set up.
  • If a penalty would apply to a distribution of funds from the retirement account, then the amount of such penalty must be subtracted to determine the income stream from these retirement accounts.
  • If the employment-related assets are in the form of stocks, bonds, or mutual funds, then 70% of the value of the retirement accounts will be used to calculate the projected retirement income.
  • Non-employment-related assets are ineligible if the retirement account funds are  (stock options, non-vested restricted stock, lawsuits, lottery winnings, the sale of real estate, inheritance, and divorce proceeds).

The following loan parameters must be met in order for employment-related retirement assets to be used as qualifying income

  • Maximum LTV is 70%.
  • Minimum Credit Score is 620.
  • Purchase and limited cash-out refinance only.
  • Principal residence and second home only.


Example of the Calculation of Net Retirement Funds as Income
IRA (made up of stocks and mutual funds) $ 500,000
Minus 10% of $500,000 ($500,000 x .10)

(assumes the borrower is not yet 59 1/2 years of age at the time this income is being calculated; therefore, it is subject to a 10% penalty for early distribution. This penalty must be levied against any cash being withdrawn for closing the transaction as well as the remaining funds used to calculate the income stream.)

(-) $50,000
Total eligible documented assets (=) $ 450,000
Minus funds required for closing

(down payment, closing costs, reserves)

(-) $100,000
(a) Subtotal (=) $ 350,000
Minus 30% of $350,000 ($350,000 x .30)

(assumes funds are in the form of stocks, bonds, and mutual funds)

(-) $105,000
(b) Net Documented Assets (=) $245,000
Monthly income calculation

($245,000/360 (or applicable term of loan in months))

See Income Calculation/Payout Stream in table below.

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