New Freddie Mac Rules Make It Easier to Use Assets to Qualify for a Mortgage
Borrowers with substantial savings and investments do not always have enough traditional monthly income to qualify for the mortgage they want. This is especially common among retirees, business owners and people who have accumulated considerable wealth but report limited employment income.
Freddie Mac has announced major changes to its “accumulated assets as income” guidelines that could help solve this problem.
These guidelines allow a mortgage lender to convert certain eligible assets into calculated monthly income. The borrower does not necessarily have to withdraw that amount every month. Instead, the lender applies Freddie Mac’s formula to determine how much qualifying income the assets can support.
Freddie Mac’s changes make this option more flexible and substantially more powerful.
The Same Assets Can Now Produce 33% More Qualifying Income
One of the most important changes is a reduction in the division factor used to calculate monthly qualifying income.
Previously, Freddie Mac generally divided net eligible assets by 240 months. Under the revised guidelines, those assets are divided by 180 months.
For example, assume a borrower has $900,000 in net eligible assets available for the calculation:
- Previous calculation: $900,000 ÷ 240 = $3,750 per month
- New calculation: $900,000 ÷ 180 = $5,000 per month
The borrower receives an additional $1,250 per month of qualifying income from exactly the same asset balance. That is a 33⅓% increase and could make a meaningful difference in the borrower’s purchasing power.
The actual calculation will depend on which assets are eligible and what amounts must first be deducted. Assets needed for the down payment, closing costs, reserves or other required purposes may not be available for the income calculation.
Age Restrictions Have Been Removed for Certain Assets
Freddie Mac is also removing the borrower age restriction for eligible depository accounts and securities.
Depository accounts can include assets held in checking, savings, money-market accounts and certificates of deposit. Securities may include eligible stocks, bonds, mutual funds and similar investments.
This expands the potential usefulness of asset-based qualification beyond older or traditionally retired borrowers. A younger business owner, investor or other high-net-worth borrower may now be able to use eligible non-retirement assets to help qualify.
Different rules may apply to retirement accounts, so every borrower’s assets still need to be evaluated individually.
Investment Properties Are Now Eligible
Previously, Freddie Mac’s accumulated-assets program was limited to primary residences and second homes. The revised rules permit all occupancy types:
- Primary residences
- Second homes
- Investment properties
This may create an important opportunity for borrowers who have significant liquidity and want to purchase investment real estate but do not have enough conventional qualifying income.
The program is limited to purchase transactions and no-cash-out refinances. It is not available for a standard cash-out refinance.
The Special 80% LTV Cap Has Been Removed
Under the previous accumulated-assets guidelines, the mortgage’s LTV generally could not exceed 80%. In practical terms, that usually meant the borrower needed at least a 20% down payment or 20% equity.
Freddie Mac has removed that special restriction. Loans using accumulated assets as qualifying income can now follow the standard maximum financing limits in Freddie Mac Guide Section 4203.1.
Depending on the transaction, financing may potentially be available up to:
- 95% LTV for an eligible primary residence
- 90% LTV for a second home
- 85% LTV for a one-unit investment property
- 75% LTV for a two- to four-unit investment property
A 95% LTV is not available in every situation. The maximum depends on the property type, occupancy, number of units, loan amount, underwriting method and any subordinate financing or HELOC. Mortgage insurance will generally be required when the first mortgage exceeds 80% LTV.
Additional Requirements Still Apply
These improvements do not mean that every borrower with a large account balance will automatically qualify.
Among the principal requirements:
- At least $30,000 in net eligible assets must be available
- The transaction must be a purchase or no-cash-out refinance
- Depository and securities accounts generally must have a 12-month history unless they were funded from an eligible documented source
- Significant increases or decreases in account balances may require additional documentation or affect eligibility
- The source of recently deposited funds must be documented
- Standard credit, debt-to-income, property and mortgage-insurance requirements still apply
Freddie Mac is also allowing certain documented proceeds from the sale of real estate or a business to be treated as eligible sources, subject to its specific holding-period and documentation requirements.
When Do the New Guidelines Become Effective?
The revised requirements apply to eligible Freddie Mac mortgages with settlement dates on or after February 3, 2027. However, Freddie Mac permits lenders to implement the changes immediately.
Not every lender or mortgage investor will adopt the new rules at the same time. Some may also impose additional restrictions, commonly called lender overlays. Availability therefore needs to be confirmed for each individual loan.
Who Might Benefit?
The new guidelines may be particularly valuable for:
- Retired or semi-retired borrowers
- Business owners whose tax returns show reduced taxable income
- Investors with substantial liquid assets
- Borrowers living primarily from savings and investments
- People who recently sold a business or real estate
- High-net-worth borrowers who do not receive a conventional salary
- Borrowers who previously could qualify only by making a 20% down payment
The central question is no longer simply, “How much income does the borrower report?” It may also be, “Can the borrower’s accumulated assets provide additional qualifying income?”
If you have substantial assets but have been told that your documented income is insufficient, these Freddie Mac changes may provide another path to mortgage approval. A detailed review of your income, assets, property and proposed financing can determine whether the new calculation improves your options.
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Frequently Asked Questions
Can I use savings and investments to qualify for a mortgage?
Yes. Freddie Mac allows certain eligible assets to be converted into calculated monthly income for mortgage qualification. Eligible assets may include bank accounts, stocks, bonds, mutual funds and certain retirement funds, subject to specific requirements.
Do I have to withdraw or spend my assets every month?
Not necessarily. The lender generally uses a formula to calculate qualifying monthly income from eligible assets. However, assets needed for the down payment, closing costs or required reserves may need to be deducted first.
How much qualifying income can my assets generate?
Under Freddie Mac’s revised formula, net eligible assets are generally divided by 180 months. For example, $900,000 in net eligible assets could potentially provide $5,000 per month in qualifying income.
Is there a minimum amount of assets required?
Yes. Freddie Mac requires at least $30,000 in net eligible assets for this method of qualification.
Can I use assets to qualify for an investment-property mortgage?
Yes. The revised Freddie Mac guidelines permit accumulated assets to be used as income for eligible primary residences, second homes and investment properties.
Can I qualify with less than a 20% down payment?
Potentially. Freddie Mac removed the special 80% LTV limit previously applied when accumulated assets were used as income. Certain qualifying primary-residence transactions may now permit financing up to 95% LTV.
Are these mortgage guidelines available now?
Freddie Mac permits lenders to implement the changes early, but they become mandatory for eligible loans with settlement dates on or after February 3, 2027. Availability may vary by lender, and additional lender requirements may apply.
Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.
