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
myFICO is the consumer division of FICO. Since its introduction 20 years ago, the FICO® Score has become a global standard for measuring credit risk in the banking, mortgage, credit card, auto and retail industries. 90 of the top 100 largest U.S. financial institutions use the FICO Score to make consumer credit decisions.>> About myFICO