topic Re: Borrowing from 401K for down payment: OK? in Mortgage Loans

Borrowing from 401K for down payment: OK?

Anonymous — Mon, 25 Mar 2013 17:14:28 GMT

I see a lot of threads where it seems to be assumed it's OK to borrow from a 401k (in our case, a 403b) to finance a down payment, but just to get a straight-up answer: Yes or no, is it OK to borrow from one's own 401k account in order to supply part of a down payment?

Elsewhere on the Internet and to a lesser degree here, I keep running into two hang-ups:

(1) The general notion that you can't borrow money for a down payment;

(2) Elsewhere on the Internet, anyone who asks about borrowing from their 401(k) to finance a down payment gets a series of lectures and scoldings from people rather than a straight answer!

Thanks in advance.

Re: Borrowing from 401K for down payment: OK?

Startfromwithin — Mon, 25 Mar 2013 17:32:51 GMT

Hello!

I am right now in the very early stages of buying a property, and I had the same exact question.

The answer I got from both a Wells Fargo LO and a Citizens Bank LO is Yes... You can borrow from your 401K for the down payment.

I event contacted the company holding my 401K, and I got the same answer from them. They did say though that if you ever borrow from your 401K, buying a house is the only time that it makes sense, but only borrow if you absolutely must!

I expect to submit an offer on the property I found either this week or next week, so I'll be able to speak more to my own experiences soon.

Good luck!!

Re: Borrowing from 401K for down payment: OK?

Anonymous — Mon, 25 Mar 2013 17:36:03 GMT

Ignore the lectures.

Since 401K money is YOUR money, loans are perfectly acceptable. You just can't ask your relatives for a loan to make the down payment, or get some sort of personal loan or whatever. Your parents or whoever can GIFT you the money, but there has to be something in writing saying that you don't have to pay it back.

Re: Borrowing from 401K for down payment: OK?

Anonymous — Mon, 25 Mar 2013 17:37:30 GMT

Awesome. We have about $9,000 saved for our down payment, but need about $6,000 more to qualify for an FHA loan on the home we want - coincidentally, almost exactly 50 percent of the retirement account.

Usually, we wouldn't be in such a rush - and I know people lecture all the time about borrowing from retirement accounts, the whole, "If you don't have the down payment, maybe you shouldn't be buying a house ..." thing. But this is a town in which there aren't many homes available in our price range and with the amenities we want - I've been online stalking for months - and we want to pounce on the one we really, really like.

Re: Borrowing from 401K for down payment: OK?

ccubedzx3 — Mon, 25 Mar 2013 17:52:51 GMT

LOL!! I hear on the lecture part....it is up to YOU if YOU want to take out money from YOUR 401k, afterall it is YOUR money. Sure, there are reasons why they say it is a bad idea, but I say to them, at least I contributed in the first place! Some people haven't contributed at all....let the lecturers attack them.

In the meantime, it is perfectly acceptable to take a loan from your 401k or 403b. We have done both. It was easier to take a loan from my 401k rather than the 403b of my wife's. My wife needed a notory to sign and date paperwork, whereas I could do all my 401k loan stuff online, with a deposit within 3 days. It took about 2 weeks start to finish with my wife's 403b.

The way I see it, houses are going up in value these days, especially if you are buying in a hot area. Chances are you will make more in equity than what you would have gained had you left your 403b alone (if it wasn't substantial to begin with). Take a deep breath, and if it works for you, that is all that really matters.

One other thing to consider though is closing costs in addition to your 3.5% if you are going FHA.

We put $10,800 down, and we are going to need an additional $7500-$8000 at closing for a $308,000 house.

Re: Borrowing from 401K for down payment: OK?

Anonymous — Mon, 25 Mar 2013 17:53:30 GMT

I took a 20 year residential loan out on $5000. Costs me $7 a week to pay it back. I think it is better to do a loan versus a withdrawal because who doesn't want that money back in there growing faster than most general savings accounts.

Re: Borrowing from 401K for down payment: OK?

Anonymous — Mon, 25 Mar 2013 17:55:48 GMT

Closing costs are definitely worrisome. I was hoping that perhaps I could use a credit card advance for at least part of those. I've heard that they'll let you save for the closing costs over the 30-day closing period, if need be, rather than having it at the time of the loan approval. We'll see, I guess.

Re: Borrowing from 401K for down payment: OK?

Startfromwithin — Mon, 25 Mar 2013 18:00:48 GMT

ccubedzx3, I hear YOU!

I must admit... it did feel a little weird asking if I could do that, when I understand full well that it is my money that I'm asking to loan against.

Ha!

Thanks for your input!!

Re: Borrowing from 401K for down payment: OK?

Anonymous — Mon, 25 Mar 2013 18:34:31 GMT

@Anonymous wrote:
Closing costs are definitely worrisome. I was hoping that perhaps I could use a credit card advance for at least part of those. I've heard that they'll let you save for the closing costs over the 30-day closing period, if need be, rather than having it at the time of the loan approval. We'll see, I guess.

There are also seller concessions and lender credits to consider. If your interest rate is low enough to start, you might consider negative points. you take a higher interest rate in return for closing costs assistance. Or the seller raises the price of the home for the amount of closing costs they'll kick in.

Re: Borrowing from 401K for down payment: OK?

Startfromwithin — Mon, 25 Mar 2013 18:37:52 GMT

Hi Foofighter 74!

Is that the same as Seller's Assist?

I plan to submit an offer at Asking Price ($224,000) with the full 6% Seller's Assist so that I won't have to come up with all of the expenses at Closing.

Re: Borrowing from 401K for down payment: OK?

Anonymous — Mon, 25 Mar 2013 18:47:49 GMT

Yes, that's exactly what I am referring to.

Re: Borrowing from 401K for down payment: OK?

ccubedzx3 — Mon, 25 Mar 2013 20:07:55 GMT

Our house is supposed to be complete at the end of May...I'm hoping we can get some lender credits ourselves so I don't have to borrow from my 401k again. I just about paid off the $9500 from 6 months ago from our deposit in September, and i'd rather not take as much next time around. My lender won't discuss all of my options until my builder tells me we are within 60 days of closing though.