A retiree holding $1 million in a rollover IRA and drawing $2,800 a month in Social Security can qualify for a second-lien home equity loan without a W-2 or a 1099. The methodology, called asset depletion (also asset dissipation, also employment-related assets as income), converts retirement and taxable assets into a calculated monthly income figure. Under Fannie Mae’s 360-month divisor, a $1M portfolio produces $2,778 a month. Under Freddie Mac’s revised 180-month divisor, it produces $5,556. On a non-QM portfolio HELOAN using an 84-month divisor, the same $1M yields $11,905.
The math’s identical. Only the divisor changes.
What asset depletion actually is
Asset depletion is an underwriting method that treats a borrower’s liquid and retirement assets as if they were being paid out over a fixed period. The lender applies discount haircuts to certain asset classes, subtracts required reserves, and divides the remainder by a set number of months. What comes out the other end is a monthly income figure the underwriter uses in the debt-to-income calculation.
The plain-English formula:
(eligible assets after discount minus reserves) ÷ divisor = monthly qualifying income
And nothing’s actually withdrawn. The retiree doesn’t liquidate the IRA, sell securities, or trigger tax events. Asset depletion is an arithmetic exercise applied to statements – not a distribution requirement.
Why a home equity loan is different from a first mortgage
Fannie Mae’s Employment-Related Assets as Qualifying Income policy, relocated to Selling Guide topic B3-3.4-06 under Announcement SEL-2026-02, and Freddie Mac’s Asset Dissipation methodology under Bulletin 2026-10, both govern first-mortgage loans the GSEs purchase. Closed-end home equity loans (HELOANs) are typically held on portfolio by credit unions, community banks, or non-QM lenders. So the GSE rulebook doesn’t literally apply.
But that doesn’t mean the rules are absent. Under Regulation Z §1026.43, any consumer mortgage lender must document a reasonable Ability-to-Repay determination. Portfolio lenders satisfy that obligation by referencing GSE math or applying their own methodology. Many use a shorter depletion period (60 to 84 months, sometimes shorter) that produces a much larger qualifying income than Fannie’s 360.
Reader searches often conflate HELOC and HELOAN. A HELOC is an open-end revolving line of credit; a HELOAN is a closed-end lump-sum second mortgage with a fixed rate and a fixed amortization schedule. This article addresses the closed-end HELOAN. Some HELOC underwriting borrows the same asset-depletion logic, but qualification rules on revolving products can be stricter.
Which retirement accounts count, and at what percentage
The age gate is 59½ – the IRS threshold for penalty-free distributions from traditional IRAs, 401(k)s, and 403(b)s. Below that age, lenders often discount retirement balances heavily or exclude them outright unless the borrower can document penalty-free access (a rule-of-55 separation, a 72(t) SEPP, or similar).
Typical discount conventions in 2026 (verify with the specific lender’s product matrix):
| Asset type | Under 59½ | Age 59½+ |
|---|---|---|
| Checking, savings, MMA, CDs | 100% | 100% |
| Non-retirement brokerage | 60% to 70% | 70% to 80% |
| Traditional IRA, 401(k), 403(b) | Often excluded or ~60% | 70% typical |
| Roth IRA basis | 100% | 100% |
| Roth IRA earnings | Discounted | 70% to 100% |
| Pension lump sum available | Excluded unless distributable | 70% |
The Roth split matters because contributions (basis) can be withdrawn tax-free and penalty-free at any age, while earnings face the 59½ and five-year rules. Some lenders apply a blended 70% haircut across the whole Roth balance to avoid the accounting. And reaching age 73 triggers required minimum distributions under SECURE 2.0, but the RMD age doesn’t change how a lender values the underlying balance for depletion.
The three divisor regimes
Fannie Mae’s divisor is 360 months, matching a 30-year amortization. Freddie Mac’s divisor moved from 240 months to 180 months under Bulletin 2026-10, which is a real loosening. Non-QM portfolio lenders commonly use 60, 72, or 84 months. The shorter the divisor, the larger the calculated income.
| Regime | Divisor | $1M portfolio produces |
|---|---|---|
| Fannie Mae B3-3.4-06 | 360 months | $2,778/month |
| Freddie Mac Bulletin 2026-10 | 180 months | $5,556/month |
| Non-QM portfolio | 60 to 84 months | $11,905 to $16,667/month |
The trade-off is right there in the open. Non-QM asset-depletion HELOANs typically price 1% to 2% above conforming rates, sit outside QM safe harbor, and require larger post-closing reserves. Freddie Mac’s method treats assets as a basis for repayment rather than literal income, so the DTI calculation differs slightly from Fannie’s.
Full worked example: retiree age 68 wants a $250,000 HELOAN
Facts: primary residence appraised at $850,000, first mortgage balance $200,000 at a legacy 3.25% rate, $1.2M rollover IRA, $150,000 taxable brokerage, Social Security $2,800/month, requested HELOAN $250,000 fixed for 20 years.
Step 1. Apply discount haircuts. Retirement assets at 70%: $1,200,000 × 0.70 = $840,000. Brokerage at 70%: $150,000 × 0.70 = $105,000. Discounted assets total $945,000.
Step 2. Subtract required reserves. Estimated PITI on the new HELOAN runs roughly $2,500 per month. Twelve months of reserves is $30,000. Net eligible assets: $915,000.
Step 3. Apply the depletion divisor. Using a non-QM 84-month divisor: $915,000 ÷ 84 = $10,893/month qualifying income.
Step 4. Add other verified income. Social Security of $2,800 brings total qualifying income to $13,693/month.
Step 5. Test DTI. A $250,000 HELOAN at 9.5% fixed over 20 years produces a principal-and-interest payment near $2,330. Add roughly $170 for the tax and insurance share attributable to the second lien and the payment sits near $2,500. DTI on this loan alone runs about 18%. Combined with the first-mortgage payment, back-end DTI stays well below the 43% ceiling most portfolio lenders apply.
The combined loan-to-value math also has to clear. With a $200,000 first and a $250,000 second against an $850,000 valuation, CLTV is 52.9%. Most primary-residence HELOAN products cap CLTV at 75% to 80%, so the file has room to spare.
The reserves trap
Reserves are the piece that surprises retirees. The lender wants 6 to 12 months of PITI in an accessible account after closing, and those reserve dollars can’t be double-counted as depletion income. So a borrower with $1M in an IRA who runs the math against the full $1M – and then discovers 12 months of reserves must be carved out separately – will watch the qualifying income figure drop. Reserves sit in a separate bucket. Experienced loan officers structure the reserves carve-out in the very first pass at the file, before the underwriter ever sees it, so the income figure the borrower gets quoted is the one the underwriter actually confirms. Plan the file that way from the first conversation.
What to bring to the lender
Two months of statements for each asset account is standard, and some lenders will accept the most recent quarterly statement for retirement accounts. For IRAs and 401(k)s below 59½, bring documentation of penalty-free access: a plan letter, 72(t) SEPP paperwork, or evidence of separation at 55. Social Security recipients need the current SSA-1099 or benefits award letter, along with a pension 1099-R or a trustee letter confirming ongoing payment where relevant. Escrow waiver rules for retiree borrowers can affect the reserves math and the monthly PITI figure used in DTI.
Rate and cost reality check
As of mid-2026, non-QM asset-depletion HELOANs are pricing roughly 8.5% to 10.5% fixed on terms of 10, 15, or 20 years (example only, not a quote). Origination fees run 1% to 2%, with title, recording, and appraisal costs adding $1,500 to $3,500 on a primary-residence second. The valuation can sometimes be handled by an AVM rather than a full appraisal, which shortens the timeline for asset-rich retirees considerably.
When asset depletion is not the right tool
So what happens when a retiree is asset-rich but the numbers still don’t quite land where they need to? A HECM reverse mortgage eliminates the monthly payment entirely for borrowers 62 and older, at the cost of MIP and a more complex title structure. A securities-backed line of credit (SBLOC) closes faster with no home appraisal, but it carries margin-call risk and no real-estate interest tax treatment. And a cash-out refinance can raise more money at a lower rate, though a retiree sitting on a first mortgage below 4% loses that legacy rate the moment the first lien is replaced. HELOAN math preserves the first, at the cost of a higher second-lien rate.
Compliance and tax notes
Every home equity loan on a primary residence carries a three-day right of rescission under Regulation Z. Interest deductibility on the HELOAN follows TCJA and OBBBA rules: proceeds used for home acquisition or substantial improvement qualify; proceeds used to consolidate debt or fund a boat do not. Texas 50(a)(6) rules add a distinct set of closing constraints for Texas homesteads, and borrowers in Texas should surface that before shopping. One more thing: consult a licensed loan officer and a tax advisor before drawing down retirement assets to service a second-lien payment, because the tax cost of a distribution can outweigh the interest cost of the loan.
Frequently asked questions
Can I qualify with no W-2 income? Yes, if the lender’s methodology treats asset depletion as sufficient qualifying income and reserves and CLTV clear.
Do I have to withdraw from my IRA? No. Asset depletion is a calculation applied to statements. No distribution is required.
Can I qualify under 59½? Sometimes. Documented penalty-free access (72(t) SEPP or the rule of 55) is the usual path, and expect steeper haircuts on retirement balances.
What is the minimum balance? Portfolio lenders commonly require $500,000 in eligible assets; some non-QM programs require $1M or more.
What credit score is needed? 680 FICO is a common floor, with competitive pricing available at 720 and above.
Does Fannie or Freddie buy asset-depletion HELOANs? No. The GSEs buy first-lien mortgages. Closed-end second liens using asset depletion sit on portfolio or in private non-QM channels.
Are these QM loans? Non-QM asset-depletion HELOANs sit outside QM safe harbor, though the lender still owes an Ability-to-Repay analysis under Reg Z §1026.43.
Does Social Security stack on top? Yes. Verified Social Security, pension, and annuity income add to the depletion figure.
How is this different from a reverse mortgage? A HECM eliminates the monthly payment for age-62 borrowers but adds MIP and a lien balance that grows over time. Asset depletion HELOANs preserve the first lien and keep a scheduled payment.
How many months of statements? Two months is standard; quarterly statements are often accepted for retirement accounts.
Do reserves come from the same account? Reserve dollars can sit in the same account, but they can’t be double-counted as depletion income.
Requirements vary by lender. Confirm current thresholds, discount percentages, and divisor with the specific portfolio bank, credit union, or non-QM wholesaler underwriting the file.
