401ks

[Starr07]

I have just started to look at mortgages for a new home. Is it typical for them to ask for a copy of your 401k? Why do they need this if you have sufficient funds for the down payment and PITI?

EQ at 696

[ShanetheMortgageMan]

Some people need reserves (funds available after you close) in order to qualify for the mortgage, and 60% of the vested portion in a 401k can be counted towards reserves.

[Starr07]

When would you need to have reserves?

[ShanetheMortgageMan]

When you don't qualify without them ;-)   <- that was my smart-alec response.

Most loans need reserves in order to qualify.  Absolutely situations are a primary residence conforming loan programs require 2 months of your proposed housing expense in reserves.  The two other common situations that may also need them is if you have a high debt to income ratio or have pecked credit.  Second home purchases & rental property purchases tend to need 6 months of the proposed housing expense in reserves.

There are literally dozens & dozens of reasons someone needs to have reserves, but only one reason for someone not needing reserves... and that is if you are qualifying for a program that doesn't need reserves, your debt to income ratio is within preferred levels, and your credit is excellent.  Any other situation you will more than likely need reserves.

If you've been asked to provide your retirement assets for verification, it is likely your loan officer has determined you'll need them in order to qualify.

[llecs]

I'm in the middle of the mortgage process too and the lender asked us to write down any asset we'd like the UWs to consider and have statements to back it up. As mentioned, reserves are needed just in case you suffer a medical issue, lose your job, become incapacitated, pass away, and so on. We put our 401(k) as an asset  too (though some months it felt like a liability) and the lender said they'd consider a portion of that as an asset (I think 50%).

[Starr07]

Whidh loan programs do not require reserves?

We could qualify for a VA loan. My DTI and utilization rate are a bit high but I will pay down the balances before I begin the process. My current is 696 and my DH is 729. Once I pay down the balances the F\ICO simulator estimates our scores in the high 750s.

[ShanetheMortgageMan]

FHA, VA & USDA loans don't require reserves unless your debt ratio is high and your credit isn't that great, if your credit is great they often don't need reserves (even with a high debt ratio), however the underwriter may feel that your loan is weak if you don't have any reserves and have a high debt ratio, because if things go wrong at all/take on any more debt, etc. you wouldn't have anything to fall back on.  Conforming loan programs such as Fannie Mae's MyCommunity Mortgage and Freddie Mac's HomePossible also don't require reserves, but they are only for buying in certain areas or if your income is in the low-to-moderate range for the county you are buying in.  VA is a great option, but if the debt ratio is over 41% it often needs some reserves due to it being 100% financing.  Putting 5-10% down with VA, and having high scores, will allow the debt ratio to go higher without having reserves.

[Starr07]

We will probably go VA. Thanks.