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Asset Questions for Mortgage Qualifications

Regular Contributor

Asset Questions for Mortgage Qualifications

For those who frequent this board, they all know that I'm getting married next week (woo hoo!).  And of course my soon to be DW and I are bringing our finances together and figuring out the best path forward so we can buy a house soon. 
 
Questions -
Does 401k count as assets, or do I need to apply some kind of factor?
3 to 6 months needed in assets...is this 3 to 6 months Gross, net, or living expenses?
To build assets should I put more in my 401k or should I scale that down and to put money in savings account?  Does it matter?
8 REPLIES
Moderator Emeritus

Re: Asset Questions for Mortgage Qualifications

401K is an asset.
 
As long as you are saving 5-20% of your gross every month you are good.
The main diffeence is how liquid you want it.
I say keep 2 months in savings or money market account.
1 more month someplace else.
 
If you have or plan to have kids- start saving NOW.
Regular Contributor

Re: Asset Questions for Mortgage Qualifications

Only 70% of it will count and its because if you were to cash it out.. You would pay taxes on it.
 


Rocket01 wrote:
For those who frequent this board, they all know that I'm getting married next week (woo hoo!).  And of course my soon to be DW and I are bringing our finances together and figuring out the best path forward so we can buy a house soon. 
 
Questions -
Does 401k count as assets, or do I need to apply some kind of factor?
3 to 6 months needed in assets...is this 3 to 6 months Gross, net, or living expenses?
To build assets should I put more in my 401k or should I scale that down and to put money in savings account?  Does it matter?



Established Member

Re: Asset Questions for Mortgage Qualifications

How about assets in a Roth IRA?? Are they counted at 100% because the money has been put in Tax free.  Also, how are those assets look at if you borrow against either (or both) to increase your down payment??
Regular Contributor

Re: Asset Questions for Mortgage Qualifications

Thanks....
I'm approaching mortgage qualification like FICOSmiley Happy
 
Knowing the tax penalities on the 401k, I was wondering if there is a factor to apply.  Now I know.
 
I'm still unclear about liquid reserves vs assets.  I'm looking to have the minimum that will keep from red flags being raised during loan evaluation.  We're both starting out and rebuidling, but we do have significant positive cash flow.  I have the flexibility to push more into the 401k or to make saving cash a priority.
 
We may be looking more at the $350k range for a house with 100% financing.  Here's the numbers that are associated with this.
Under this scenario...
PITI is $2800/month
Expenses - $7000/month
Net Income - $8000/month
401k assets - $50k
Cash Savings Reserves - $20k
Savings for Closing costs - $15k
 
The rest of the numbers are better than 28/36 guidelines, and provide for good savings and 401k growth.
 
I've got about $10k more that I'm not sure where to put it (401k, Cash Reserves, or towards the house).
 
There's a lot of flexibilty whether I put more into Downpayment/Closing, 401k assets, or cash reserves.  I sure appreciate advice....
Moderator Emeritus

Re: Asset Questions for Mortgage Qualifications

They should be counted at 100% if it is a first home as the penalty can be waived.

IMHO- It will depend if you have other assets/savings to cover you in the event of a "major finacial change" They like to see 3 months of "emergency funds"

bdog94tiger01 wrote:
How about assets in a Roth IRA?? Are they counted at 100% because the money has been put in Tax free.  Also, how are those assets look at if you borrow against either (or both) to increase your down payment??



Regular Contributor

Re: Asset Questions for Mortgage Qualifications

Yes but in tax free but if you pull out you get taxed BIG TIME. So the yes to the 70% .
 


bdog94tiger01 wrote:
How about assets in a Roth IRA?? Are they counted at 100% because the money has been put in Tax free.  Also, how are those assets look at if you borrow against either (or both) to increase your down payment??



Regular Contributor

Re: Asset Questions for Mortgage Qualifications

For a 100% loan... 6 months in reserves is where you want to be.

Rocket01 wrote:
We may be looking more at the $350k range for a house with 100% financing.  Here's the numbers that are associated with this.
Under this scenario...
PITI is $2800/month
Expenses - $7000/month
Net Income - $8000/month
401k assets - $50k
Cash Savings Reserves - $20k
Savings for Closing costs - $15k
 

http://ficoforums.myfico.com/fico/board/message?board.id=generalcredit&thread.id=17531
Regular Contributor

Re: Asset Questions for Mortgage Qualifications

Thanks to all, and just back from Honeymoon Smiley Very Happy
 
Given: 6 months in reserves is the key factor for 100%.
 
Monthly Expenses = $7,000 , there for I should have $43,000 in reserves.
 
So....
401K:  $50k X 0.7 = $35k
Cash:   $20k
Total reserves = $35k + 20K = $55k  (or ~8 months)
 
Do I have this right, or do the 6 months all have to be in cash reserves outside the 401k?