Seasoning downpayment funds

[Anonymous]

Hello all,

I have read on this board that having funds sit for 90 days helps to season the money so that lenders are less inclined to inquire/get antsy as to where those funds came from?

I plan on borrowing from my 401k for my downpayment and was wondering if it would be good strategy to let those funds season for 90 days or if it just doesn't matter.

Perhaps doing so the monies won't be questioned and the loan may not be counted in by DTI?

Thanks!

[Anonymous]

I'd simply explain to the lender where the funds came from, and have documentation (your 401k statement and bank statement).

Ideally, you don't take the loan out until you know exactly how much you need. Consider the loan payments will probably count towards your back-end ratio.

[rena347]

I just completed a refinancing of my home. Unfortunately, my home appraised for about $10,000 less than what was owed. Fortunately home values in my area haven't dropped as much as other areas have experienced. Since this was an unexpected cost, I didn't have the money available in savings so I took out a 401K loan. All I had to do was to provide a copy of the 401K distribution check and a copy of the bank statement where it was deposited into my account. All of this occurred less than 30 days before closing. The underwriter was ok with this documentation and we closed as scheduled.

Edited to add: I missed the part about the DTI. There were no questions about the amount of the 401K loan repayments or that this would affect DTI. In the list of payments that we signed at closing verfying that this was a list of our debt, only those from the credit reports were included. The underwriter knew the funds were from a 401K loan so it would seem that the payments aren't calculated in the DTI ratio.

[DallasLoanGuy]

The term is: "Sourced or Seasoned"

Seasoned: The large deposit is not on your last 2 bank statements.

Sourced: Document that the funds are from an acceptable source.

401k = acceptable source. You just have to paper trail the money.

[Phitor]

Just be careful. Some retirement account withdrawals for first time home buyers (e.g., simple IRA), HAVE to be used within 120 days of withdrawal. So you can't season funds like this too long.

[Anonymous]

Dallas,

If the funds are seasoned what advantage will that have?

Does every lender count a 401k loan towards DTI?

[m29]

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@Anonymous wrote:

Dallas,

If the funds are seasoned what advantage will that have?

Does every lender count a 401k loan towards DTI?

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I have that same question, I am taking out a small 401k loan! 

[Anonymous]

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@m29 wrote:

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@Anonymous wrote:

Dallas,

If the funds are seasoned what advantage will that have?

Does every lender count a 401k loan towards DTI?

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I have that same question, I am taking out a small 401k loan! 

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My (humble) understanding is that if the payments are >10 months, then yes, they'll count towards your DTI. Another reason why I'd recommend discussign with your LO before taking any action on it.

Our plan is to have the 401k loan option only if we absolutely need it to hit some certain down payment/closing cost gap. Hopefully, we won't need to, but I've already reduced our DTI to prepare for that just in case.

[rena347]

I don't know about other lenders but our 401K loan payment was definitely not counted in our DTI.

[Anonymous]

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@rena347 wrote:

I don't know about other lenders but our 401K loan payment was definitely not counted in our DTI.

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And it was a longer than 10 month repayment? Did your LO know about it? Just curious, might come in handy.