Can I use rental income from a property I'm purchasing to qualify?

For investment property purchases, most conventional lenders allow 75% of the appraised market rent (from a 1007 rent schedule on the appraisal) to be counted as income. DSCR loans underwrite specifically on this rental income without requiring the borrower's personal income documentation.

Can rental income offset my debt-to-income ratio?

Yes. If you own rental properties with documented leases and the income appears on your tax returns (Schedule E), lenders can add 75% of gross rents to your qualifying income. This reduces your effective DTI by adding to the income side of the equation. New rental income (no 2-year history) is treated differently.

How many investment properties can I finance conventionally?

Fannie Mae and Freddie Mac conventional loans cap at 10 financed properties per borrower. Properties 5–10 require 25–30% down and stricter credit requirements. Beyond 10 properties, investors typically use DSCR loans, commercial loans, or portfolio lenders who are not subject to the Fannie/Freddie cap.

Asset Depletion for Mortgage Qualification: Fannie Mae vs Freddie Mac Guidelines

Retired, wealthy, minimal W-2 income, but millions in assets. Asset depletion might be your qualifying strategy. This is one of the most powerful and underutilized tools in mortgage underwriting, and most borrowers who could benefit from it have never heard of it.

What Asset Depletion Is

Asset depletion, also called asset dissipation, is a method that converts your liquid and retirement assets into a theoretical monthly income stream for mortgage qualification purposes. Instead of needing a paycheck to prove you can make mortgage payments, you demonstrate that your assets are substantial enough to cover the payments if you were to draw from them. You don't actually have to draw from them, the calculation just shows the theoretical capacity.

Fannie Mae's Asset Depletion Method

Under Fannie Mae guidelines, the calculation works like this: add up all eligible liquid and retirement assets, subtract any required down payment and closing costs, then divide the remaining amount by the loan term in months (360 for a 30-year loan). The result is your monthly qualifying income from asset depletion. For example: $1.2 million in eligible assets, minus $50,000 for down payment and costs, leaves $1.15 million. Divided by 360 months equals $3,194 per month in qualifying income. That income stacks on top of any other income you have, Social Security, pension, rental income, to build your total qualifying picture.

The Retirement Account Haircut

For retirement accounts (IRAs, 401(k)s, 403(b)s), Fannie Mae applies a discount before the calculation if the borrower is under age 59.5. The reason: early withdrawal would trigger a 10% penalty plus taxes, reducing the actual accessible value. For borrowers under 59.5, Fannie Mae typically uses 70% of the vested retirement account balance as the eligible asset. For borrowers 59.5 and over, the full balance can generally be used.

Freddie Mac's Approach

Freddie Mac also allows asset depletion, with similar mechanics. The key differences: Freddie Mac uses a slightly different calculation methodology and may have different rules around eligible asset types. Both agencies agree that checking accounts, savings accounts, money market accounts, CD accounts, and investment/brokerage accounts (with some liquidity caveats) can be included. Both agencies exclude assets that are restricted, pledged as collateral, or not accessible to the borrower.

Which Assets Count

Eligible assets generally include: personal checking and savings accounts, money market accounts and CDs, investment accounts (brokerage, mutual funds), vested IRAs and 401(k)s (with the applicable haircut for under-59.5 borrowers), and proceeds from the sale of assets (if documented). Assets that do NOT count: unvested retirement funds, stock options that haven't vested, funds held in business accounts without proper documentation that the borrower has full access, life insurance cash value (in most cases), and assets held in the name of a trust unless the borrower is the trustee with full control.

Combining Asset Depletion with Other Income

Asset depletion income doesn't have to stand alone. If you have $2,000/month from Social Security, $1,000/month from a pension, and $3,194/month from asset depletion, your total qualifying income is $6,194/month. This combined approach allows many retirees to qualify for mortgage amounts that their income alone wouldn't support.

Common Mistake

Including business assets or unvested retirement funds without understanding the eligibility rules. A borrower who owns a business with $500,000 in the company checking account cannot simply count that money as their personal asset unless specific documentation establishes their unrestricted personal access to those funds. Similarly, unvested stock options and restricted stock units don't count even if they're worth millions on paper. Use only what the guidelines permit.

Bottom Line

Asset depletion is a legitimate and powerful qualifying strategy for high-net-worth borrowers who are asset-rich and income-lean. The Fannie Mae and Freddie Mac guidelines are specific, the calculation method, the eligible asset types, and the retirement account haircut all matter. This is not a product every lender knows how to execute correctly. Work with a broker who has done it before and can walk you through the exact calculation before you apply.