01-16-2013 07:31 AM - edited 01-16-2013 07:32 AM
We are currently building a new home and were told that we would close in April. I plan on taking a loan from my 401k to cover costs right about when we close. Is it ok to do this? Another scenario is to take a loan out now from my 401k, and throw it in my savings account until we need it. Which is the best option?
01-16-2013 08:02 AM
You need to know from your lender how long the funds need to be "seasoned" in other words how long they need to be sitting in that savings account so that their source is not in question. As for a 401k loan some lenders will consider that loan as part of your debt for your DTI and some will not. Our lender didn't care that our funds came from a 401k loan but needed them seasoned for two months. I also would recommend a loan over a withdrawal as you are taxed when you withdraw the funds even when buying a primary residence.
01-16-2013 08:22 AM
01-16-2013 12:58 PM
I plan on taking a loan out either way. My main question is, will the mortgage company look at my 401k loan as "savings" or will treat it like something else? I am paying off items like a banshee right now, so I don't have much in my "savings account." I want to know if I should contribute more to savings right now to build up funds in addition to what I plan on using from my 401k?
Thanks for the advice in advance!
01-16-2013 06:19 PM
01-16-2013 06:24 PM
I am in process of closing now - but my lender was fine with downpayment and/or closing costs being covered by my 401k - however they also required 3 months reserves in addition & that could not come from my 401k. Pretty sure that might vary by lender though.
01-16-2013 09:42 PM
You can take a loan from your 401k tax and penalty free for down payment/ closing for a mortgage... But it is important that you pay it back or you will be penalized. The loan wont count against your DTI since it is a loan against yourself.
01-17-2013 04:06 AM - edited 01-17-2013 04:07 AM
I've already gave the builder a check for $10,000 (3.5% down going FHA) in Earnest money back in September. $500 towards the title work, and $9500 towards the down payment which has already been cashed and cleared.
My lender told me they may be able to offer a "lender credit" up to $7000 depending on the rates when I lock in (late March). My closing costs are going to be about $8000 total, so I'm hoping that I won't have to come up with too much cash for closing, and I can save the cash for other things such as landscaping and what not. I just don't want to depend on the "lender credit" just in case it isn't available. I want to make sure I have enough cash to close if need be. I just don't have the means to save $8000 between now and closing...maybe half that, but not $8000 unless I tap into my 401k.
Thanks for your responses all....very valuable information and I greatly appreciate the time you took out to respond!
01-17-2013 07:00 AM
Forums posts are not provided or commissioned by FICO. Forums posts have not been reviewed, approved or otherwise endorsed by FICO. It is not FICO's responsibility to ensure all posts and/or questions are answered.† Advertiser Disclosure: The listings that appear on myFICO are from companies from which myFICO receives compensation, which may impact how and where products appear on myFICO (including, for example, the order in which they appear). myFICO does not review or include all companies or all available products.
* For complete information, see the terms and conditions on the credit card issuer’s website. Once you click apply for this card, you will be directed to the issuer’s website where you may review the terms and conditions of the card before applying. While myFICO always strives to present the most accurate information, we show a summary to help you choose a product, not the full legal terms - and before applying you should understand the full terms of products as stated by the issuer itself.
IMPORTANT INFORMATION: All FICO® Score products made available on myFICO.com include a FICO® Score 8, along with additional FICO® Score versions. Your lender or insurer may use a different FICO® Score than the versions you receive from myFICO, or another type of credit score altogether. Learn more
FICO, myFICO, Score Watch, The score lenders use, and The Score That Matters are trademarks or registered trademarks of Fair Isaac Corporation. Equifax Credit Report is a trademark of Equifax, Inc. and its affiliated companies. Many factors affect your FICO Score and the interest rates you may receive. Fair Isaac is not a credit repair organization as defined under federal or state law, including the Credit Repair Organizations Act. Fair Isaac does not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit record, credit history or credit rating. FTC's website on credit.