How worried should I be?

[Anonymous]

Hello,

We just received our conditional approval for an FHA loan on a new home.  Loan officer called to congratulate and discuss next steps.  She emailed the approval notice to the sales consultant at the builder so construction can begin.  The loan is being issued by the builder as well.   Issue I am having is with one of the conditions:

Complete finance agreement - check.

Sign and return approval notice - check.

Provide evidence of receipt of $13,387.00 in liquidated 401k funds - UH OH!

As my loan officer went over these conditions she asked as if to confirm that I am withdrawing these retirement plan funds for the down payment.  I told her no, I am unable to access any funds from my retirement plan unless I retire or am otherwise separated from my employer.  This has been advised several times and is included in the retirement plan provisions they requested.

She asked how we intend to make the downpayment, which is only $6,500.  We have that in our savings as has been the plan all along.  She said that's fine and will ask for a bank statement showing the cash 30 days prior to close. 

My guess is the 401k funds they were asking be liquidated was to be used as compensating factor since our dti is at 46% with the new loan.  So, how worried should I be this may become a problem?  As a first time buyer, I tend to worry.  Is it in the loan officer's capacity to change requirements set by underwriting?

Thanks for reading!

[Anonymous]

It sounds like the $13,387.00 will be the total due at closing. This figure includes your down payment of 6,500. There is a little known secrete when it comes to 401k distributions. Call your plan provider and ask them about a hardship withdrawal for your primary residence. If this is your first home you should not see any penalties for early withdrawal. Most plans only let you take the closing costs minus your down payment. In your case 6,900 minus tax but no penalty.

TBC

[StartingOver10]

When the underwriter has a conditional approval looking for liquidated funds in the amount of $13,387; that means you have to show the funds in at least that amount because you will need that money to close.

I think there may be a communication error between you and the loan officer. You seem to be under the impression that you only need to come up with the down payment amount of $6,500. Who is paying your closing costs and pre-paid expenses? The builder? You?  The lender? Check your purchase and sale contract too.

The underwriter looks for the amount of cash you need to close, plus reserves if required.  FHA doesn't require reserves except in certain circumstances that don't pertain here.

Take a look at your GFE to see what all of your costs will be to close: down payment; closing costs and pre-paid expenses. Now look at your contract with the builder to see exactly what the builder is going to pay, if anything. Sometimes builders will put an amount in the contract that they will pay but that amount only covers what would customarily be a seller's expense. In many instances builders pass seller expenses onto the buyer at closing. The only way to know is to read your contract and confer with your loan officer and your builder. It's best to get this worked out now so you have a smooth closing.

[Booner72]

Where did the 401K  money come into the picture anyway?  If you weren't planning on using it, then why does the UW want proof of liquidation (or whatever she said).

[Anonymous]

Thanks for the replys.  Looking at the URLA and GFE, total settlement charges are $9,372.  Builder is paying closing costs of $7,500 and are also providing a $2,000 bonus incentive for using them as the lender, so that should cover all of our closing costs.  The exact $ amount due from borrower is $6,239.61, approx. 3.5% of sale price ($181,100).  Loan amount comes out to a total of $176,500 with $1700 in prepaid costs.  We also paid earnest $ of $500.  Document titled Itemization of Settlement Charges has ESTIMATED CASH REQUIRED: $6,239.61.  The figures are all pretty consistent with the initial contract we signed.

So, the figure mentioned $13,387 is still a bit arbitrary, but next time I speak to the loan officer, I'll have to double check and ask exactly how much cash I need at closing.

[Anonymous]

Regarding the retirement plan money, it's not really a 401k plan, but a profit sharing plan.  I mentioned it during the initial interview when asked if we had retirement plans, but again, also stated I could not use it.  Still, they asked that I list it anyway as 'assets'.