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Fannie Mae & Freddie Mac – 20% Liquidation Rule


Our client needs $130k to close.  We have verified $120k in checking and $63k in an IRA.  Do we have to provide liquidation documentation from the IRA if we have over 20% of assets remaining after closing?


The 20% rule, as stated in the Freddie Mac Selling Guide, refers to the combined value of the assets before any withdrawal is made for closing. The rule specifies that when assets that are invested in retirement accounts are needed for closing, evidence of liquidation is required unless the combined value of the assets is at least 20% greater than the amount from these assets needed for closing. This is true for Fannie Mae as well.

This means that the total value of the assets, including the retirement account, must be at least 20% greater than the closing costs before any funds are withdrawn. If this condition is met, then evidence of liquidation of the retirement account is not required. If the condition is not met, then evidence of liquidation would be necessary if funds from the retirement account are to be used for closing.

In the context of your scenario, you would look at the total assets before withdrawing the $130K for the down payment and closing costs to determine if the remaining funds are at least 20% greater than the amount needed for closing. If the remaining funds do not meet this threshold, then liquidation documentation for the IRA would be required if those funds are to be used.


Freddie Mac Handbook Section 5501.3

Supporting Resource:

We host an All-Agency comparison chart on Acceptable Sources of Funds for Down Payment and Reserves. This chart compares the differences between the agencies based on the asset type. Subscribers can find this chart under “Charts & Checklists” – “All Agency.”