Can You Use Your 401(k) to Qualify for a Mortgage?

Yes, your 401(k) can help you qualify for a mortgage. On a conventional loan, lenders can count regular 401(k) or IRA distributions as income, or turn the balance into income with an asset formula that spreads it over 180 to 360 months, with no withdrawal. One program through our lending partners goes much further: as of October 2026, it divides your 401(k) balance by just 36 months and counts the result as monthly income, on top of your other income, for borrowers who meet its guidelines. Even if you are not yet at retirement age, it counts 90% of the balance.

This post is mainly about qualifying income, not taking a 401(k) loan. Modern Home Lending is an independent mortgage broker licensed in Arizona, Colorado, Florida and Georgia. We are not tax advisors, so run any change to your retirement accounts past your tax professional first.

How do 401(k) and IRA distributions count as income on a conventional loan?

This is the standard route for retirees. Typically, you are of retirement age, generally 59 1/2 or older, so you can take money out of your 401(k) or IRA without an early withdrawal penalty. You set up a regular monthly distribution, and the lender counts that monthly amount as income on a conventional loan, the same way it would count a pension, as long as the account can keep paying it for at least three years.

For example, if you set up a $3,000 monthly IRA distribution and the account holds enough to keep paying it for three years, the lender adds $3,000 a month to your qualifying income. Here is how Fannie Mae and Freddie Mac handle it as of October 2026:

• No penalty. Freddie Mac counts distributions that are not subject to an early withdrawal penalty. Fannie Mae requires unrestricted, penalty-free access when you combine 401(k), IRA and Keogh balances to show three years of continuance.
• Three years of continuance. The balance has to support the distribution for at least three years.
• Short history is fine. Fannie needs none for a fixed distribution and 12 months for a variable one, which it averages. Freddie looks for zero to 24 months, and none for required minimum distributions.
• Setting one up. Your plan administrator or IRA custodian sets it up, and it needs to have started, since Fannie counts income you are currently receiving. Expect to show a recent account statement or a plan letter with the amount and frequency. Freddie Mac also asks for evidence of receipt and 1099s. Whether to start one is a tax decision, so ask your tax professional first.

The three-year math: a $3,000 monthly distribution needs at least $108,000 in eligible accounts, after any money you take out for closing. FHA loans count these distributions under a similar three-year test.

Can you use a 401(k) balance without taking distributions? Yes, but very conservatively

Yes, but the conventional methods are very conservative. Fannie Mae and Freddie Mac each turn eligible assets into monthly income with no withdrawal, but they spread the balance over 180 to 360 months, so even a large account adds only modest income.

• Fannie Mae (B3-3.4-06) subtracts funds to close, reserves and any early withdrawal penalty, then divides the rest by the loan's amortization term in months, 360 on a standard 30-year mortgage. It covers purchases and limited cash-out refinances of a primary or second home, at up to 70% loan-to-value, or 80% if the asset owner is at least 62 at closing. Retirement accounts qualify only if no distribution is set up or it is too small.
• Freddie Mac (5307.1) subtracts funds to close and divides the rest by 240. It covers purchases and no cash-out refinances of a 1- to 2-unit primary or second home, up to 80% loan-to-value. Retirement accounts must be fully vested, solely owned, penalty-free and not already used as income. Its updated section cuts the divisor to 180, required for loans settling on or after February 3, 2027 and available to lenders sooner.

Fannie's own example: a $500,000 IRA, minus a $50,000 early withdrawal penalty and $100,000 for down payment, closing costs and reserves, leaves $350,000. Divided by 360, that is $972.22 a month. The penalty is deducted, not disqualifying.

Is there a mortgage program that counts more of your 401(k) as income without distributions?

Yes, even if you are not at retirement age. One program through our lending partners counts 90% of your 401(k) balance, divides it by 36 months, and adds the result to your other qualifying income, with no distributions set up.

It is not a Fannie Mae or Freddie Mac method; the program sets its own guidelines. The agency methods above, and the other asset-based programs we have reviewed, spread your balance over a much longer stretch, which is why the 36-month divisor matters.

Eligibility, which balances count, loan limits and reserves are set by the program and confirmed in underwriting. Specialty programs usually price higher than conventional loans, so if the distribution route already qualifies you, it may be the better deal. We run both.

How much income can a 401(k) add?

On a $600,000 401(k), the 90% / 36 method counts $15,000 a month ($600,000 x 90% = $540,000, divided by 36). At retirement age the same program counts the full balance, $16,667 a month. How that compares with the agency asset methods:

Monthly qualifying income, rounded, for illustration only. Every row is shown before subtracting funds to close and reserves, and agency rows assume penalty-free access. The divisor does most of the work: on the same dollars, 36 months instead of 360 counts ten times the income, and nine times after the program's 90% factor.

Run your own balance and other income through the program's formula. Pick your age group: at retirement age the program counts 100% of the balance, and under retirement age it counts 90%.

Can you combine 401(k) income with a paycheck, pension or Social Security?

Yes. The program adds 401(k) income on top of the other income your lender verifies, so the account does not have to carry the whole loan.

Say you are 55, earn $3,500 a month from a part-time job, and have a $400,000 401(k):

At retirement age, the full $400,000 counts, or $11,111 a month, and it stacks the same way on a pension or Social Security. It also works with a salary or business income. If you are self-employed and write-offs keep your taxable income low, a large 401(k) can close the gap. See do tax write-offs hurt your mortgage approval?

Can savings or brokerage accounts count as mortgage income too?

Depending on the loan program, yes. Savings, brokerage and other retirement accounts can count, each under its own rules (Fannie Mae's asset method, for example, takes only retirement-type accounts), so ask us which of yours apply. See options for non-standard buyers for more ways to qualify.

Home equity is not income, but a line of credit can turn it into cash. Our primary-home HELOC calculator estimates your available line at different combined loan-to-value ceilings, and the rental equity calculator shows how much equity you can pull from an investment property.

Who benefits most from using a 401(k) to qualify for a mortgage?

People whose savings outweigh their paycheck:

• Recent retirees with a large 401(k) and a smaller pension or Social Security.
• Early retirees who have not started regular distributions. Access requirements for the account are confirmed in underwriting.
• Large balances, modest pay, such as part-time work or a career change.
• Self-employed borrowers with low taxable income.

Do you have to withdraw the money or pay taxes?

Not for the asset-based methods: Fannie Mae and Freddie Mac count the balance without a withdrawal, and you confirm how the 36-month program documents your account with us. The distribution route does use money you receive, and distributions are generally taxable, so talk to your tax professional before starting one.

Federal law bars lenders from discriminating based on age. The ages here come from IRS tax rules and agency guidelines. Withdrawals before 59 1/2 generally carry a 10% additional tax unless an IRS exception applies. One, for leaving your employer in or after the year you turn 55 (50 for some public safety workers), generally covers only the plan of the employer you left, not IRAs. Required minimum distributions generally start at 73, or 75 if you were born in 1960 or later. Your tax professional can tell you which rules apply.

Can the same 401(k) cover your down payment and reserves?

Not with the same dollars. Vested retirement funds can count toward your down payment, closing costs and reserves under Fannie Mae's retirement account rules, but Fannie subtracts what you need to close and keep in reserve before dividing the rest. Freddie Mac does not let additional retirement accounts used to prove three years of continuance also count for closing funds, reserves or its asset method. If your 401(k) is both income and cushion, ask how the program treats each piece.

What should you ask a lender about using your 401(k)?

Ask what share of your balance counts and what it is divided by. Under the agency asset methods, even a large 401(k) adds modest monthly income, because the balance is spread over 180 to 360 months. Also ask whether only the vested balance counts, which accounts count, and how your down payment and reserves change the number.

Whether you buy a home or refinance, we will show you the conventional route and the 36-month program side by side, or you can request a custom rate quote. Already own your home and need cash more than a new mortgage? Run the HELOC calculator first.

Program information was checked in October 2026 and can change. This article is general information, not tax, legal or investment advice. Talk with a tax professional about your situation.

Programs, rates, and terms are subject to change without notice. This is not a commitment to lend. All loans are subject to credit approval and program guidelines.