“How do you calculate asset depletion income” is a fair question to ask before trusting a lender’s number, because the math genuinely isn’t obvious the first time you see it — and because different lenders and different loan types (conventional Non-QM versus FHA) don’t all calculate it identically. Here’s the mechanic itself, step by step, plus a straight answer on whether FHA allows it.
If you’re still getting oriented on what an asset depletion loan is in the first place, start with what is an asset depletion loan? This article assumes you already know the basic idea and goes straight into the calculation.
The core calculation, step by step
The mechanic behind most asset depletion programs follows the same general shape, even though specific lenders adjust the details:
- Total the qualifying liquid assets. The lender adds up the value of eligible accounts — commonly checking, savings, CDs, brokerage holdings (stocks, bonds, mutual funds), and often retirement accounts such as IRAs and 401(k)s.
- Apply any discounting the program requires. Some lenders count certain asset types at full value and others at a reduced percentage — retirement accounts, for instance, are sometimes discounted to account for early-withdrawal considerations. This step varies meaningfully by lender.
- Subtract funds already earmarked elsewhere. Money already committed to the down payment and closing costs is typically excluded from the qualifying-asset pool, since that portion won’t be available to “deplete” going forward.
- Divide by the loan term. A common method divides the remaining qualifying asset total by 360 months — the length of a standard 30-year mortgage — to produce a monthly qualifying income figure. Some programs use a different number of months or a different formula entirely; the 360-month approach is common, not universal.
- Use that monthly figure as qualifying income. The resulting number is treated the way an employment income figure would be on a conventional file, feeding into the lender’s standard debt-to-income calculation alongside the mortgage payment and other obligations.
Because the discounting rules and divisor can differ from lender to lender, the identical asset picture can produce a noticeably different qualifying income figure depending on which lender runs the numbers — which is exactly the kind of variation worth shopping across multiple lenders rather than accepting one calculation as the final answer.
Why 360 months, and when it isn't 360
The 360-month figure isn’t arbitrary — it matches the length of a standard 30-year fixed mortgage, and the underlying logic is that the qualifying-asset pool should theoretically be able to sustain the payment across the full life of the loan. But that logic only cleanly applies to a 30-year term. On a 15-year mortgage, some lenders adjust the divisor to match, while others keep the 360-month convention regardless of the actual loan term — a difference that can materially change the qualifying income figure a borrower is quoted, and one more reason a single number floating around online shouldn’t be assumed to apply universally. There’s no substitute for asking a specific lender which divisor their specific program uses before comparing numbers across lenders.
Comparing asset depletion to a straightforward DTI calculation
It helps to see how the calculated asset-depletion figure plugs into the rest of the file. Once a lender arrives at a monthly qualifying income number — using the steps above — that figure is treated the same way a paycheck would be on a conventional file: it becomes the income side of the debt-to-income ratio, weighed against the proposed mortgage payment and the borrower’s other monthly debt obligations. Nothing about the DTI math itself changes; only the source of the income figure does. This is worth understanding because it means credit history, existing debt, and the size of the requested loan still matter on an asset depletion file exactly as they would on any other mortgage — the program solves the income-documentation problem specifically, not every other part of underwriting.
A worked illustration of the math
As a purely illustrative example with round, hypothetical numbers — not a real calculation, not a program guarantee — picture a borrower with $2,000,000 in combined brokerage and retirement assets. Setting aside $200,000 for the down payment and closing costs leaves $1,800,000 in the qualifying pool. Using the common divide-by-360 method purely as an illustration: $1,800,000 ÷ 360 = $5,000 in calculated monthly qualifying income. If the same lender discounted the retirement-account portion by, say, a hypothetical amount before applying the divisor, the resulting monthly figure would come out lower — which is exactly the kind of program-specific detail that changes the bottom line and needs to be confirmed with the actual lender running the file, not assumed from a generic formula.
Does FHA allow asset depletion?
In certain circumstances, yes. HUD’s Single Family Housing Policy Handbook (4000.1) permits what it refers to as asset dissipation or asset depletion as a qualifying income source on FHA-insured loans, under HUD’s own defined conditions — including which asset types are eligible, documentation requirements, and HUD’s specified calculation methodology. Two things are worth understanding clearly:
- It isn’t automatic. FHA asset depletion is available under specific conditions in HUD’s handbook, not as a blanket alternative income source available on every FHA file.
- HUD’s method may differ from a conventional Non-QM lender’s method. Because HUD sets its own eligible-asset rules and its own calculation approach for FHA loans, the mechanics described in the step-by-step section above — which reflect common conventional/Non-QM asset depletion practice — are not automatically identical to how an FHA file would calculate the same borrower’s qualifying income.
Because HUD’s handbook is a living federal document that gets updated, and because getting the specific eligible-asset and divisor rules right matters for a real underwriting decision, the reliable move is confirming the current FHA-specific mechanics directly with a lender or broker working an actual file — rather than treating any single article, including this one, as the final word on HUD’s current numbers. The handbook itself is published at hud.gov.
A second illustration: how discounting changes the outcome
As another purely illustrative example with round, hypothetical numbers — again, not a real calculation — picture two borrowers who each hold exactly $1,200,000 in a 401(k), with no other liquid assets. Borrower A applies at a lender that counts retirement assets at full value with no age adjustment: $1,200,000 ÷ 360 = roughly $3,333 in hypothetical monthly qualifying income. Borrower B applies at a lender that discounts retirement assets by a hypothetical 30% before applying the divisor: $840,000 ÷ 360 = roughly $2,333 a month — nearly $1,000 a month less in qualifying income from the identical account balance. That gap is large enough to change what loan amount a file can support, and it exists purely because of how two different lenders treat the same asset type. This is the clearest illustration of why "how much will I qualify for" doesn't have one answer independent of which lender is asked.
Why the calculation method matters more than people expect
Two borrowers with the identical dollar amount in assets can end up with very different qualifying income figures depending on: which asset types the lender counts at full value versus a discount, whether the program excludes the down-payment portion from the calculation, and which divisor the lender applies. That's not a technicality — on a large asset pool, a modest difference in method can shift the qualifying income figure by a meaningful amount, which in turn affects what loan size the file can support. This is the single best reason not to treat one lender's asset-depletion quote as the market's answer.
How the calculation can differ for retirement accounts
Retirement accounts deserve their own mention because they’re treated less consistently than checking or brokerage accounts across the industry. Some programs count IRAs and 401(k)s at full value in the qualifying calculation; others apply a discount, reasoning that early withdrawal before a certain age can trigger tax penalties that reduce the practically available balance. Some programs also apply an age-based adjustment, factoring in how close the borrower is to standard retirement-account withdrawal age. Because this is one of the more variable parts of the calculation across lenders, a borrower whose asset picture leans heavily on retirement accounts specifically — rather than a brokerage or savings account — may see more variation in quoted qualifying income from lender to lender than a borrower whose assets sit entirely in immediately liquid accounts.
What documentation supports the calculation
Because the entire qualification rests on the asset figures, documentation focuses there rather than on income. This is a meaningfully shorter list than a conventional file’s income documentation — no pay stubs, no employer verification calls, no multi-year tax-return analysis — but what it does require needs to be accurate and current, since the whole qualifying figure is built from it:
- Recent statements for every account being counted — checking, savings, CDs, brokerage, and retirement accounts — typically covering the most recent one to two statement cycles.
- Proof of continuous ownership or a documented history for the account, since a large deposit that just landed in an account shortly before applying can raise questions a lender will want answered.
- Verification of any funds already earmarked for the down payment and closing costs, so the qualifying-asset calculation excludes them correctly.
Because the qualifying figure is entirely built from these documents, small differences in how an account is titled, how recently funds moved, or which statements are provided can change the calculation — another reason this file type rewards working with someone who checks the numbers before submission rather than after a lender flags an issue.
Getting an accurate calculation before shopping for a home
Because the qualifying income figure directly determines the loan amount a file can support, it’s worth getting a real calculation — not a rough estimate — before house-hunting seriously, especially in a market where competitive offers move fast. The practical sequence: gather the most recent one to two statement cycles for every account being considered, separate out any amount already earmarked for the down payment and closing costs, and have a broker run the actual numbers against several lenders’ current methodologies rather than applying a generic divide-by-360 formula to the full asset total. Because discounting rules and divisors genuinely differ, a borrower who skips this step and estimates their own qualifying income risks house-hunting in the wrong price range entirely — either underselling what they can actually support, or overestimating it and facing a disappointment once a real lender runs the numbers.
A California note: asset depletion and high local home prices
In Orange County and much of coastal California, where home prices routinely push financing into jumbo loan territory, the asset-depletion calculation carries extra weight simply because the qualifying income figure needs to support a larger loan amount to make a purchase work. A retiree or high-net-worth borrower with substantial but not unlimited liquid assets may find that the discounting and divisor choices described above make a meaningfully bigger difference to what they can afford here than they would in a lower-cost market, where a smaller loan amount is easier to support regardless of which lender's method is used. This is one more reason the calculation is worth getting right upfront rather than assuming a rough number from a generic online calculator will hold up against a jumbo-sized purchase.
The short version
Asset depletion income is calculated by totaling a borrower’s qualifying liquid assets, applying any lender-specific discounting, subtracting funds earmarked for the down payment and closing costs, and dividing what’s left by the loan term — commonly 360 months — to produce a monthly qualifying income figure. FHA permits a version of this under HUD’s own defined conditions in its Single Family Housing Policy Handbook, though FHA’s specific mechanics can differ from a conventional Non-QM lender’s method and should be confirmed directly for a current file.
Because the exact discounting, divisor, and eligible-asset rules genuinely differ by lender and program, the real value of a broker on this file type is running the calculation across several lenders rather than accepting one number. At Choice Home Mortgage, owner Esther Buede structures these files personally. See the full program details on our asset-based mortgage page, or call (949) 522-7310.