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Regular Contributor
Posts: 104
Registered: ‎04-30-2008
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401k withdrawal/underwriting question

Hi everyone - I've been on these forums for quite some time, but haven't posted anything recently...you all give such great advice!

 

I've paid off much of my debt, but was wondering if I use some of my 401k to pay off part of the debt if it is "frowned" up on during the underwriting process?

 

I'm aware of the tax implications and early withdrawal penalties, but would it hurt me in getting  a mortgage down the road?

 

Thank you!


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Established Contributor
pakman92
Posts: 650
Registered: ‎03-01-2012
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Re: 401k withdrawal/underwriting question

[ Edited ]

tianapb725 wrote:

Hi everyone - I've been on these forums for quite some time, but haven't posted anything recently...you all give such great advice!

 

I've paid off much of my debt, but was wondering if I use some of my 401k to pay off part of the debt if it is "frowned" up on during the underwriting process?

 

I'm aware of the tax implications and early withdrawal penalties, but would it hurt me in getting  a mortgage down the road?

 

Thank you!


My original reply didn't post correctly.  Hopefully this will work.  I'm sure 401K plans differ from company to compnay, but the one's I've had allowed for general purpose loan to be taken out (with limits on how much you can take out).  This will help you avoid early withdrawl penalty and taxes.  You just pay it back to yourself, the interest you pay is also to yourself.  You should see if this options is available to you.    w.r.t.  whether it's 'frowned' upon by your creditor, I don't see why they would need to know at all where the money is coming from.

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good_credit
Posts: 21
Registered: ‎09-21-2007
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Re: 401k withdrawal/underwriting question

I guess, i would indirectly.  As a part of the loan process, you would be asked to provdie all the assets/monies you have e.g investments . I'm not sure what your sistuation is .. 

 

Did you consider a loan , as opposed to withdrawing monies ..

Regular Contributor
StrateUp
Posts: 233
Registered: ‎02-02-2012
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Re: 401k withdrawal/underwriting question

NEVER siphon off your 401K to pay debt. Never.

Most retirement investments are earning about .8 percent right now. Just about the only retirement account that is growing is the one that your employer is matching. Don't eat cat food in your old age.

That being said, borrowing from you 401K and paying it back is the new savings account for home loan down payments. Not the best idea but many banks like the looks of the 401K balance as a backup and an indicator that you can save some money.

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webhopper
Posts: 7,230
Registered: ‎09-16-2011
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Re: 401k withdrawal/underwriting question


StrateUp wrote:

NEVER siphon off your 401K to pay debt. Never.

Most retirement investments are earning about .8 percent right now. Just about the only retirement account that is growing is the one that your employer is matching. Don't eat cat food in your old age.

That being said, borrowing from you 401K and paying it back is the new savings account for home loan down payments. Not the best idea but many banks like the looks of the 401K balance as a backup and an indicator that you can save some money.



+1...  If it wasn't for my very healthy for my age 401k and Roth IRA balance of 60k, I just turned 30 and I started working a real job in 2006.... I would have never gotten approval and closed in Jan 2012...  as I had no savings account to speak of LOL   I find that I am able to save more efficiently by sticking money where the sun don't shine and letting it grow without being able to tap into it easily. I used a 401k loan as part of my down payment, The rest was cash flowed into savings from my normal earnings after I applied for the mortgage.   I wasn't planning on buying a house in Jan 2012, but I had to do something quickly due to me choosing a bad place to rent (there was raw sewage in the yard and the utilities during the summer were about $600/month due to poor insulation...  nuff said)


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Regular Contributor
StrateUp
Posts: 233
Registered: ‎02-02-2012
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Re: 401k withdrawal/underwriting question

NEVER quite making your regular contributions to your 401K while paying back the barrowed amount. If Gen X don't have a retirement set up for 30 years from now, you only THINK times are hard right now.

You are doing good.

Member
Strut
Posts: 27
Registered: ‎01-19-2012
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Re: 401k withdrawal/underwriting question

I wouldn’t take a straight withdraw from your 401K to pay off debt. You’ll lose 40% right off the top on taxes and penalties. For some people, a 401k loan can make sense to pay off high interest debt, especially in a bear market. You should do your own due diligence.

 

From my research 401k Loans are not generally considered in DTI ratios since the debt is collateralized.  However, you should still factor the payments in your own calculations to make sure your home is still affordable.

 

As mentioned previously, having assets in your 401k can be a major plus when in underwriting and will serve to meet any reserve requirements they might have. Not to mention that if you find yourself in financial trouble you’ll have a buffer to help get you through.

Regular Contributor
StrateUp
Posts: 233
Registered: ‎02-02-2012
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Re: 401k withdrawal/underwriting question

DTI is debt you cannot turn off short of a BK or moving into the city park. In a really bad scenario, you don't have to pay back a 401K loan but that is a very bad idea.

All things aside, whether you withdraw, borrow or don't touch your 401k, just having one MUST look terrific to an underwriting department this day in age. I'm only assuming a substantial 401K could sway the decision of an underwriter but I'll bet my bottom dollar on it, whether it is part of the scoring model or not.

Make sure you know if the money you are paying back your 401K with is pre-tax or post tax. It's the difference of paying your self back about 2% interest or paying uncle sam about 20%interest so you can borrow your own money.

New Contributor
rross
Posts: 57
Registered: ‎06-13-2011
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Re: 401k withdrawal/underwriting question

First bit of advice... don't listen to everyone who acts like a 401k withdrawal is the most horrendous thing you can ever possibly do.

 

Second bit of advice... check your private messages, I sent you some information :smileyhappy:

Regular Contributor
StrateUp
Posts: 233
Registered: ‎02-02-2012
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Re: 401k withdrawal/underwriting question


rross wrote:

First bit of advice... don't listen to everyone who acts like a 401k withdrawal is the most horrendous thing you can ever possibly do.

 

Second bit of advice... check your private messages, I sent you some information :smileyhappy:



Yeah, most people and the experts will advise you do listen to them.


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