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Valued Member
amby5755
Posts: 25
Registered: ‎06-05-2012
0

401k question!

My 401k plan has the option of me taking out a general purpose loan and a primary residential loan, my question is can I request a general purpose loan just for the purpose that I will get it quicker? It may be possible that I can close sooner and I just want to make sure I have the funds whereas I would need to submit proper documentation and prolong me getting the money I need. thank you.
Established Contributor
foofighter74
Posts: 828
Registered: ‎12-09-2012
0

Re: 401k question!

Yes, that's exactly what i did.  You can get the residential loan and choose to pay it back in 20 years, but you have to submit documentation and there's processing time. I requested my general loan online on a friday afternoon, and we had the check in hand a week later.  Because it's your own money, it shouldn't ding your DTI any to have the shorter payback time (and if the loan is small enough, you'll probably put all the money back in with a lump some payment a lot quicker than 5 years, like i am doing).

 

I'm not a big fan of doing the residential loan unless its absolutely necessary. The plan might be to put the money back a lot sooner than 20 years, but life happens.  You want as much of that money back in the account as possible as quickly as you can.

Regular Contributor
violetsmom
Posts: 146
Registered: ‎12-04-2012
0

Re: 401k question!

Not all residential 401k loans take long to process. I did mine last Tuesday and all I did was fax in my purchase contract and by the end of the day I could see my loan status had been set to approved and the check is in the mail.
Valued Contributor
MovingForward_2012
Posts: 3,406
Registered: ‎12-19-2012
0

Re: 401k question!

I did a residential loan and they told me it would take a long time but they reviewed my information and approved it in less than a week. It was worth it because my payment is $7 a week versus $20 a week. I had to fax in the Purchase and Sales agreement and promissory note.
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Contributor
Startfromwithin
Posts: 102
Registered: ‎09-10-2012
0

Re: 401k question!

I had the same question.

 

I was just wondering about whether or not it would look bad or if there were any disadvantages to getting the funds now. I will be submitting an offer next week. I figured I might as well get the 401K loan out of the way...

Established Contributor
foofighter74
Posts: 828
Registered: ‎12-09-2012
0

Re: 401k question!

Yeah, that was my thinking as well.  No need to fax any paperwork. You just take the general loan and you've got your money.  It doesnt' look bad - unless you wind up spending the proceeds of the loan on a new "toy" or something that's not house related. lol

 

There are no disadvantages to getting the money now.  We needed to put down a deposit of $5,000 before the builder would start so I had no interest in messing around with faxing paperwork and such.  Plus, i wanted to pay back as much of the loan right away as I could possibly afford. It's a good reminder to put all the money back as soon as possible instead of assuming you'll pay it back at some point in the next 20 years (residential loan).

 

In my experience, people generally get used to only having to make a tiny payment to their 401k and wind up spending the extra money each month on something else, rather than making it a priority to save up the balance of your loan and put it all back ASAP. Also, if you're paying enough back each month (I took a $10,000 loan, and i pay back about $200 in principal a month), you'll have less of a balance to save for!

Valued Contributor
MovingForward_2012
Posts: 3,406
Registered: ‎12-19-2012
0

Re: 401k question!

I was glad I took out a residential loan as taking on a mortgage is a big enough expense without adding an additional $200 in financial obligations. If you have the money then you can do a general loan but don't add additional obligations that can make it harder to save and pay for emergencies. I get about a $6000 bonus every year, as well as a raise every year, plus I will get a good amount back in taxes next year. Those lump sums are put into savings and I know I will definitely have the money to pay back my 401K in 5 years versus 20. Plus I only withdrew $5000. I think the more you take out, the harder it is to pay it back. I was absolutely against adding significant debts to my monthly budget as I knew the house itself it such a major responsibility. The residential loan must be taken out before closing if you decide to do that. Whether or not the higher monthly payment for a general loan is warranted will depend on the amount of disposable income you have after paying all your monthly obligations as well as after you put away the amount you need each month for savings. What I wouldn't do is choose a general loan just because it is theoretically quicker because that might hurt you financially in the long run.

I am a homeowner now and just paid my first mortgage payment of $2387.23. The $14 a week I am saving from going residential helps me significantly as every penny counts. It is a huge shock compared to the $1500 I was paying even though I have the income for it. We have already had to cut back on our lavish lifestyle that we had when we were renting. I just bought $500 in frozen meats from a local company as their meats are a lot cheaper than at the grocery store and they aren't pumped up with preservatives, growth hormones, and antibiotics. These meats are going to last us 6-8 months and my grocery bills are going to be chopped in half. Our biggest issue is learning to cook almost every night versus taking easy street. I think I'm rambling a little bit but my point is once you are a homeowner and you start making that larger payment, you will thank yourself for leaving as much disposable income as possible. The budget looks okay on paper but it is different once you begin making mortgage payments. Most homeowners have to modify at least one behavior to save money and the more disposable income you have starting out, the easier it will be.

Like I said before, as long as you provide the full Contract with ALL signatures and your signed promissory note, it should not take very long for an approval. Just make sure you don't leave anything out. I got my check 2 weeks after faxing in the paperwork. The approval came within 3 days and the rest of waiting time was from check processing and snail mail.

Be sure a general loan is the way to go...financially, don't base your information on the time it takes. Remember, the entire mortgage process is a test of patience.
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Established Contributor
foofighter74
Posts: 828
Registered: ‎12-09-2012
0

Re: 401k question!

Well, i certainly think if someone is going to try and get a mortgage that is $800 more per month than their rent, then sure, leave some room...however, I wouldn't advise anyone to do that in the first place.  Obviously it was what you and your family decided to do, but I don't think most individuals are going to put themselves in a position to make that kind of jump. 

 

These are personal decisions based on everyone's own situation....but it does no good to put $600 per month into a savings account, yet only pay back 15-20 per month on your 401k loan.  The savings is offset by the debt.  You need to save more to pay back the loan, and if you're going to use the money you're saving to pay the balance off in a lump sum, it's going to take you longer to save which means you're paying more interest. 

 

There are many ways to look at it...but I'd never do a residential loan.  Too many things can go wrong between now and the time I "plan" on paying back the loan - including moving on from a job (in which case your loan is due in full or you get hammered with more taxes), that it's just more comfortable to know i'm putting the money back ASAP.  Obviously this depends on what you can afford, but if you can't afford the loan payment, you probably can't afford the mortgage anyway. 

Valued Contributor
MovingForward_2012
Posts: 3,406
Registered: ‎12-19-2012
0

Re: 401k question!

Listen...it is not the increased amount so much that is the concern. I make a 6 figure salary and was living well below my means so most of the money was going into savings anyway. And given that, we were still living lavishly when we were renting. Who are you to judge someone based off the increase in the mortgage payment from the rent? Obviously, you are missing a lot of financial data about the person to make the case that it is a bad idea. I'm saving $600 a month on top of the reserves I already have. Most people don't even put money away each week to save and if they do, it is a lot less than $600. And I have a 401K that I put money into every week. Many people trying to get mortgages right now don't even have a retirement account.

I am speaking from experience when I wrote how I felt about the 401K situation and I was giving an example. Folks that make way less than I do get mortgages all the time that have half the payment shock that I do but I still have more disposable income left over than they do at the end of the month. Judging a book by its color or in other words, judging a large figure increase as a bad financial decision for everyone without knowing their income, etc., is premature. I'm taking additional measures to add more than $600 per month to savings, not to pay my bills. I already pay my bills just fine with my current budget. I'm cutting back to save more! You shouldn't assume just because someone disagrees with you.
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Super Contributor
DallasLoanGuy
Posts: 6,328
Registered: ‎07-03-2007
0

Re: 401k question!

it wouldnt matter to me how you did it

 




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