Can you qualify for a mortgage using your retirement savings instead of a paycheck?

Which assets count?

• Retirement accounts such as a 401(k), IRA, SEP or Keogh, if you have the unrestricted right to withdraw the whole balance
• A severance package or lump-sum retirement payout from a job, documented with the employer's distribution paperwork

Assets that don't count include stock options, unvested stock, lottery winnings, proceeds from selling real estate, an inheritance, divorce proceeds and virtual currency. Regular checking and savings usually don't count unless the money came from an eligible source.

How is the income figured?

The lender uses a formula to turn the account balance into a monthly amount, after subtracting any penalty that would apply if you took it all out now. The assets must be in your name, or the co-owner must also be a borrower. The loan needs a larger down payment or more equity than usual, with a higher limit if the owner of the assets is 62 or older at closing.

What if I'm already taking withdrawals?

If you already take regular distributions from a retirement account, pension or annuity, those can often be counted under the standard retirement income rules instead, which may fit better. See a mortgage in retirement.

Does FHA count retirement account withdrawals?

FHA counts regular withdrawals you already take. HUD's Handbook 4000.1 requires proof that the IRA or 401(k) distributions are recurring and likely to continue for three years, using your latest account statement plus tax returns or a bank statement. Steady distributions are counted at the current amount; if they vary, the lender averages the last two years.

Who might this fit?

Buyers who've retired early or are between jobs with substantial savings, or downsizers buying a smaller home in a 55+ community or a lake home as a second home. Tom can compare it with other options, including non-traditional income loans.