Many retirees reach a point where they have more savings than monthly income. They may have a pension, some part-time work and a paid-off home, along with a substantial investment account built over a career. That balance sheet is strong, but a mortgage application looks mostly at monthly income.
The gap shows up most often when a retiree wants a second home. Two sets of housing costs land on one income, and a small surprise can push the numbers out of range.
I recently worked with a retired buyer who wanted a second home in Texas to be closer to his son and his future grandchildren. He wanted to put only 10% down to stay liquid, because he was also helping his mother with the costs of assisted living. Here is how a new Freddie Mac rule for counting savings as income made the purchase work.
How His Pension and Part-Time Income Were Counted
He had retired from his lifelong career and had worked part time for the 10 years since. Both income sources could be used, with the right documentation:
- Pension income counts when it is documented, for example with an award letter and proof of receipt, and is expected to continue.
- Part-time income generally needs a two-year history. Because his hours can vary, the lender averaged his part-time earnings over the most recent two years.
The figures below are illustrative.
| Income source | Monthly |
|---|---|
| Pension | $2,500 |
| Part-time income, two-year average | $4,000 |
| Total qualifying income | $6,500 |
On its own, that was enough to support the second home, at least on paper.
The Insurance Surprise
He owned his current home outright, so there was no mortgage payment to count. But a paid-off home still has costs: property taxes and homeowners insurance. Lenders include both in the debt-to-income ratio, because they continue whether or not there is a loan.
Early on, he estimated his insurance at a lower figure than it actually was. When we received the policy, the premium was much higher. With Texas insurance costs rising in recent years, this is one of the most common surprises in a file.
Continuing the illustrative numbers, suppose the second home was $410,000 with 10% down ($41,000), for a $369,000 loan and a total payment of $2,450 a month.
| Monthly obligations | As first estimated | After the actual policy |
|---|---|---|
| Second home payment (PITI) | $2,450 | $2,450 |
| Current home property taxes | $450 | $450 |
| Current home insurance | $200 | $550 |
| Other debts | $100 | $100 |
| Total | $3,200 | $3,550 |
| Debt-to-income ratio on $6,500 | About 49% | About 55% |
A $350 difference in one insurance premium moved the file from just under 50% to above it. Conventional loans generally cap the ratio at 50%, so the loan had to be restructured.
The obvious fixes did not fit his goals. A larger down payment would have lowered the payment, but he wanted to stay liquid for his mother’s care. Counting his savings as income was not an option at first, either. Under Freddie Mac’s previous rules, loans that used assets as income were generally capped at 80% loan-to-value, which would have required 20% down. A recent rule change removed that obstacle.
Freddie Mac’s New Way to Count Savings as Income
Freddie Mac allows eligible assets to be converted into monthly qualifying income, a method often called asset depletion. Freddie Mac describes it in its Seller/Servicer Guide, Section 5307.1, as using assets as a basis for repayment.
In August 2026, Freddie Mac announced changes in Bulletin 2026-10. Two matter most for this buyer: loans that use assets as income are no longer limited to 80% loan-to-value, and net eligible assets are now divided by 180 months instead of 240, which produces about 33% more monthly income from the same savings. The updated rules are required for loans settling on or after February 3, 2027, but lenders are allowed to use them now, and some already have.
The calculation works in three steps:
- Total the eligible assets, such as savings, brokerage and retirement accounts, subject to Freddie Mac’s rules for each type.
- Subtract the money needed for the purchase, including the down payment and closing costs. Gift and borrowed funds do not count.
- Divide what remains by 180. Under the new rules, at least $30,000 in net eligible assets must remain.
The Numbers
Continuing the illustrative example, suppose he had $300,000 in eligible savings and investments, and needed $51,000 for the down payment and closing costs.
| Pension and part-time income only | With savings counted as income (÷ 180) | |
|---|---|---|
| Net eligible assets | Not used | $249,000 |
| Monthly income from assets | $0 | $1,383 |
| Pension and part-time income | $6,500 | $6,500 |
| Total qualifying income | $6,500 | $7,883 |
| Debt-to-income ratio on $3,550 | About 55% | About 45% |
The asset income did not require him to sell investments or withdraw anything. It is a calculation used to qualify; his savings stayed in place to support his mother’s care and his own retirement.
Lenders can choose whether to adopt the new rules early, so two lenders may calculate different amounts until February 2027. It is worth asking which version a lender is using.
Keeping the Down Payment at 10%
This was the change that made the difference. Under Freddie Mac’s previous rules, loans that used assets as income were generally capped at 80% loan-to-value, so with 10% down he could not have counted his savings at all. Bulletin 2026-10 removes that special cap and applies the standard limits for the property type instead.
For a second home, conventional financing generally allows as little as 10% down. That let him use his savings to qualify while still keeping the down payment where he wanted it.
What Makes a Home a Second Home
A second home is not the same as a rental. Lenders generally expect that:
- You will live there for part of the year and keep it for your own use.
- It is not rented out or run through a rental management arrangement.
- It is suitable for year-round living and is not a timeshare.
Buying a home near family that you will visit regularly fits that description well. If you plan to rent it out, the loan must be structured as an investment property instead, with different terms.
A Checklist for Retirees Buying a Second Home
- Gather your pension documentation, such as an award letter and recent proof of deposits.
- Pull two years of records for any part-time income.
- Get the actual insurance premium and tax bill for every home you own. Estimates are where many files go wrong.
- List your eligible assets with recent statements, including retirement accounts.
- Ask whether the lender uses Freddie Mac’s 180-month calculation or the previous 240-month version.
- Decide how much you want to keep liquid before choosing the down payment.
Why Working With a Mortgage Broker Matters
Freddie Mac’s new asset calculation is optional for lenders until February 2027. Until then, some lenders are still using the current rules, which divide your savings by 240 months and cap these loans at 80% loan-to-value. Under those rules, a buyer putting 10% down could not count savings as income at all. Other lenders have already adopted the new 180-month calculation without the special loan-to-value cap, and any lender may add its own overlays on top. For a borrower near a debt-to-income limit, that difference can decide the outcome.
As a mortgage broker, Mortgage Literacy, powered by LendFriend Mortgage, works with more than 40 wholesale lenders. That lets us find lenders that have adopted the new rules and compare how each one treats pension, part-time income and savings on the same file.
The Bottom Line
A retiree with a pension, part-time income and significant savings can be a strong borrower who still looks stretched on a debt-to-income worksheet. An unexpected insurance premium is often enough to tip the balance.
Freddie Mac’s 180-month asset calculation gives those savings more weight without requiring the borrower to spend them. My buyer qualified for his second home near his son with 10% down, and he kept his savings available for his mother’s care.
Frequently Asked Questions
Can I use my savings as income to qualify for a mortgage? Yes. Freddie Mac and Fannie Mae both allow eligible assets to be converted into qualifying income under their own rules. Freddie Mac’s updated method divides net eligible assets by 180 months.
When does Freddie Mac’s new asset calculation take effect? It is required for loans settling on or after February 3, 2027, under Bulletin 2026-10. Lenders may adopt it earlier, and some already have.
Do I have to withdraw money to use asset depletion? No. The calculation is used to qualify. You do not have to withdraw or sell the assets.
Can I buy a second home with 10% down? Conventional loans generally allow 10% down on a second home, subject to credit, income and property requirements.
Does a paid-off home count in my debt-to-income ratio? Its property taxes and homeowners insurance do. Lenders include those costs even when there is no mortgage.
Can part-time income count in retirement? Usually, with a two-year history. Variable part-time income is typically averaged over that period.
Thinking about a second home near family? Schedule a call with me, or start your application, and I’ll run your pension, part-time income and savings through the new calculation.