Simplest Way to Qualify for a $110,000,000 Mortgage

Freddie’s Secret Calc’ to boost qualifying by 30%*:

For borrowers with deep pockets and irregular income, qualifying for a mortgage can sometimes be a mystery. Traditional income verification methods, like W-2s or salary, don't always capture the full financial picture. Ditto for tax returns, as the most recent year does not always paint the best picture. This is where experience matters. Your loan approval is in the hands of your loan officer, hopefully, one that appreciates the rules on asset depletion, also known as asset dissipation. Since the majority of loans originated today are sold to the GSEs (Fannie Mae and Freddie Mac), it is important to understand the differences when it comes to using assets as income. Here’s why:

Asset depletion allows mortgage lenders to convert a borrower's liquid assets and retirement holdings into qualifying income. It's a powerful strategy to assist self-employed individuals, retirees, or those with substantial wealth but less conventional income profiles. With the recent spike in volatility, selling assets may be untimely, or liquidating may force an unnecessary tax burden. While both Fannie Mae (FNMA) and Freddie Mac (FHLMC) embrace this approach to using assets for income, their guidelines differ significantly, and not knowing the rules could cost you substantial leverage.

Let's break down the key differences in their 2025 guidelines:

1. Eligible Assets: What Counts?

- Fannie Mae (FNMA): More restrictive. Fannie Mae primarily focuses on employment related assets to be used as qualifying income. The qualifying assets must be owned individually by the borrowers. If owned by a co-borrower they must also be on the loan. It is a prerequisite that the borrower has unrestricted access, and that the assets are not actively distributing income. Traditional assets include 401k, IRA, SEP, and Keoghs. Liquid assets like checking, savings, investment accounts may only be considered with exception. Real estate equity, for instance, is not allowed for depletion income. Ditto for high end art, just in case you have a piece that belongs in the M.O.M.A. The age of the borrower/s is critical, with 62 years as the current threshold.

- Freddie Mac (FHLMC): More flexible. Freddie Mac offers a broader scope, potentially including both liquid and non-liquid assets. For all the financial planners out there, that means both qualified and non-qualified accounts. This can extend to beyond retirement accounts, if at least one borrower is 62 years or older. Assets from the sale from the borrower’s business can be used if documented properly. If the borrower still has an active business, it’s possible to leverage those assets with an exception. Vesting and proof of access is the same as Fannie.

Unfortunately, for both, crypto still does not cut it. Bitcoin, Ethereum, and all forms of cryptocurrency are not eligible assets for dissipating. A common rule of thumb for all eligible assets is stability, regulated custody, and the “proper” documentation. So, while your Kraken and Coinbase wallets are booming, it will not help you qualify for a conforming loan under agency rules at this time. Things change often in this business and if the GSEs are released from conservatorship, who knows, the opportunity be around the corner.

2. Calculation Period: Depletion Differences

This is where the "income" is calculated over a specific period.

-Fannie Mae:

360 months (30 years): For non-retirement assets.

If the borrower is under 62, the assets may still qualify but typically require a larger down payment than 20%. Max LTV of 70%.

-Freddie Mac:

240 months (20 years): A simpler, consistent term for all assets, depending on age, and if the assets are retirement or non-retirement.

Unlike Fannie and regardless of age, 80% LTV is the max. The Enhanced Relief Refinance Mortgage is based on max ratios.

Both investors require the mortgage to be secured by a primary second (vacation) home. Eligible transaction includes purchase money mortgages and rate and term refinances (no cash-out) and with a max of 2 units.

3. Calculation Formula: Artistic Interpretation

The core formula determines your monthly qualifying income.

-Fannie Mae Example: (Eligible Assests - Down Payment - Closing Cost - Required Reserves) / 360 = Mo. Qualifying Income: FNMA deducts loan costs and reserves from the eligible asset pile before calculating the income.

-Freddie Mac Example: (Eligible Assets - Down Payment - Closing Cost - Gifts - Pledged Funds) / 240 = Mo. Qualifying Income. FHLMC’s calculation is more direct, taking the total eligible assets over a 20-year term. Reserves can be deducted depending on the Loan Prospector decision results.

4. Minimum Reserve Requirements: What Gives?

-Fannie Mae: Generally requires additional reserves on top of the assets used for depletion. This typically ranges from 2 to 12 months of mortgage payments, depending on the loan type and risk factor.

-Freddie Mac: Can be more accommodating. Sometimes, the same asset pool can be used to satisfy both the depletion income calculation and the reserve requirements, subject to approval by their Loan Product Advisor (LPA).

5. Underwriting Differences: Check your brush!

-Fannie Mae: Often requires manual calculation by the underwriter unless their Desktop Underwriter (DU) system specifically indicates that depletion income can be applied.

-Freddie Mac: Their Loan Product Advisor (LPA) system is designed to automatically apply asset depletion logic, provided the assets are correctly entered into the loan file. This can streamline the process.

*Same Assets, Different Outcome. 30% More Definition!

To truly grasp the impact of these differing guidelines, let's look at a vivid (and slightly silly) example using the 2017 valuation of the famous "Salvator Mundi" painting. This isn't about having more money than God, but rather, a DaVinci painting of God!

Imagine a borrower with $450.3 million in eligible assets (the painting's sale price) and the borrower is 63 years of age.

As you can see, simply by applying Freddie Mac's methodology, the qualifying income derived from the same asset pool increases by approximately one-third! Ad absurdum, let’s picture the maximum mortgage amount based on 45% Debt to Income ratios, a 4.5% interest rate and 15-year amortization. Since we are backing into the loan amount, let’s assume this is for a refinance, and that the DU and LP do not require any reserves for the pre-close calculation.

FNMA income = $1,250,833/month (assuming liquid funds over 360-months)

This translates to a potential Loan Amount of $73,579,057. (assuming no other debt - no taxes, insurance or dues)

FHLMC income = $1,876,250/month (using same liquidity figure above but the simpler 240-month term)

This translates to a potential Loan Amount of $110,368,615. (assuming no other debt - no taxes, insurance or dues).

Good luck finding a lender that will accept these income calculations with 9 figure loan request. The conforming loan max in most states is $806,500. If you go over that amount, your likely in portfolio loan territory where different depletion rules apply.

The Bottom Line

Understanding the nuances between Fannie Mae and Freddie Mac's asset depletion guidelines is crucial. For high-net-worth clients or self-employed borrowers with complex financial profiles, knowing which guideline best suits their asset structure can be the true difference between a loan decline and a clear to close. Always work with a knowledgeable mortgage professional who can navigate these intricate rules and help you leverage your assets effectively.