He Will Retire at 62 With $720,000 in His 401(k) and No Paycheck. His Mortgage Lender Will Count $2,000 a Month He Never Withdraws

Consider a 62-year-old who has just retired with $720,000 in a 401(k) he can reach whenever he wants. He has no paycheck and a house he wants to buy. He also doesn’t want to pull taxable money out of the account just to show a lender some income.

Mortgage forums are full of people in this spot. A recent r/CaliforniaMortgages thread on asset-based loans named the tool most retirees have never heard of: “Fannie Mae’s program is called Employment Related Assets as Qualifying Income.” For him, that program is worth about $2,000 a month in income a lender can count.

How a 401(k) Balance Turns Into Income on a Loan Application

Fannie Mae writes the rules for most conventional mortgages. Those rules let lenders count certain retirement assets as income for eligible borrowers through a provision called employment-related assets as qualifying income. The key issue is employment. The money has to come from work-based savings like a 401(k) or IRA. A regular brokerage account falls outside the program unless it is tied to retirement.

The lender takes the net documented assets and spreads them over the loan term. That turns a lump sum into a regular monthly figure it can use in the debt-to-income test. Fannie Mae divides by the loan term, usually 360 months. Freddie Mac uses a shorter period, producing more qualifying income from the same eligible balance. Its older rules use 240 months, while newer rules available to lenders reduce that to 180.

Where the $2,000 a Month Comes From

Say the full $720,000 counts as net documented assets because his down payment, closing costs and required reserves are covered elsewhere. Divided over a 360-month mortgage, that comes to $2,000 a month, or $24,000 a year.

For comparison, the average retired worker’s Social Security check is $2,071 after the 2026 cost-of-living raise. If he also claims benefits, the lender adds both income streams together. His 401(k) balance alone works like a second Social Security check on the application.

Four Checks Every Underwriter Runs Before Counting a Dollar

1. Unrestricted access. He must have the right to withdraw his entire 401(k) balance. At 62, he’s past the age when the 10% early-withdrawal penalty applies. But the lender still needs to confirm that his plan allows him to access the money without restrictions.
2. Loan-to-value cap. The program caps the loan at 80% if the owner of the assets is at least 62 at closing. On a $500,000 home (an example price), the loan tops out at $400,000. He’d need $100,000 for the down payment, preferably from outside his 401(k) to preserve the full $2,000 monthly income calculation.
3. Deductions come off first. Any money used for the down payment, closing costs or required reserves is subtracted before the division. If the lender sets aside $30,000 of the 401(k) as reserves (an example amount), his qualifying income falls to about $1,917 a month.
4. Paperwork. The lender needs the most recent monthly, quarterly or annual 401(k) statement showing the balance and investments. It must also verify that he owns the account and can access the funds.

Qualifying Income Stays in the Account and Off Your Tax Return

Under federal tax rules, traditional 401(k) money generally becomes taxable when it’s withdrawn. The lender’s calculation moves zero dollars. All $720,000 stays invested and tax-deferred.

That keeps him clear of the tax hit. A 401(k) withdrawal is generally fully taxable, and it feeds into IRMAA, the Medicare surcharge for higher earners. IRMAA looks at your tax return from two years back. In 2026, a single filer with income above $109,000 pays an extra $81.20 a month for Part B. The thresholds will be different when our retiree turns 65.

Picture the other path. He pulls a large lump sum at 63 for a bigger down payment. That income could raise his Medicare premiums at 65, including a separate Part D surcharge, depending on the thresholds in effect then (we mapped the full set of IRMAA tiers and coverage gaps in a free Medicare guide). He also uses up the low-income years before Medicare, which are often the best window for small, planned Roth conversions.

What to Do Before You Apply

• Name the program. Ask the loan officer directly whether they underwrite Fannie Mae’s employment-related assets as qualifying income. Some lenders will steer you to non-QM asset-depletion loans (loans outside standard agency rules), which charge higher rates for a similar calculation.
• Pay the down payment from outside the 401(k). Use home-sale proceeds or cash savings if you can. Every dollar you take from the account lowers your qualifying income and adds to your taxable income for the year.
• Do the math yourself first. Subtract any funds needed for the down payment, closing costs and reserves, then divide by 360. Add any qualifying Social Security income. The lender will still evaluate his debts, credit and the proposed mortgage payment before approving the loan.

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