topic Re: Advice needed for 401k loan days before closing in Mortgage Loans

Advice needed for 401k loan days before closing

joshall — Wed, 20 May 2015 19:32:37 GMT

I am going to take a loan from my 401k to cover some of the down payment and closing cost (12k) before closing (6/30).

My question is whether:

(1) This is usually frowned upon on (by the Loan Underwriter), and

(2) Could I just loan it out 14 days before closing? So, the money would only be in my Checking for less than 1 week. I figure this is okay as it will be a verified deposit?

Any insights will be very helpful!

Re: Advice needed for 401k loan days before closing

frugalQ — Wed, 20 May 2015 20:32:48 GMT

you can use 401k funds for down payment...that's not looked down upon. however, when you take a loan out, it will reduce the amount available to cover any reserve requirements you may have.

congrats!!!

Re: Advice needed for 401k loan days before closing

dragonfly66 — Thu, 21 May 2015 00:43:04 GMT

I am currently going through a similar situation. I contacted 2 different mortgage companies about doing the same thing. One told me they count the repayment of the loan in your DTI calculation. The other told me they didn't, but I would need to have a certain amount in reserves. I could use the 401K as my reserves, but the loan would impact how much they consider me to actually have in reserves. They only counted 60% of my total 401K balance as the money I could use as my reserves. I hope this helps.

Re: Advice needed for 401k loan days before closing

youdontkillmoney — Thu, 21 May 2015 00:57:47 GMT

This is what Wells Fargo told me a few weeks ago:

"To answer your question, we do NOT count the loans on retirement accounts in your debt to income ratios. "

Re: Advice needed for 401k loan days before closing

dragonfly66 — Thu, 21 May 2015 01:56:12 GMT

Youdontkillmoney, that is so strange. It was a Wells Fargo LO that told me the exact opposite. She claimed that it is a Fannie/Freddie requirement. Academy Mortgage didn't do that.

Re: Advice needed for 401k loan days before closing

merc64 — Thu, 21 May 2015 03:33:05 GMT

@dragonfly66 wrote:
Youdontkillmoney, that is so strange. It was a Wells Fargo LO that told me the exact opposite. She claimed that it is a Fannie/Freddie requirement. Academy Mortgage didn't do that.

I'm guessing your LO was just plain ole mistaken. Everything I've read points to how 401k loans are secured loans basically against yourself and do not count towards DTI.

Re: Advice needed for 401k loan days before closing

dragonfly66 — Thu, 21 May 2015 04:23:26 GMT

@merc64 wrote:
@dragonfly66 wrote:
Youdontkillmoney, that is so strange. It was a Wells Fargo LO that told me the exact opposite. She claimed that it is a Fannie/Freddie requirement. Academy Mortgage didn't do that.
I'm guessing your LO was just plain ole mistaken. Everything I've read points to how 401k loans are secured loans basically against yourself and do not count towards DTI.

That makes sense to me. I decided to work with Academy.

Re: Advice needed for 401k loan days before closing

Anonymous — Thu, 21 May 2015 15:29:53 GMT

@merc64 wrote:
@dragonfly66 wrote:
Youdontkillmoney, that is so strange. It was a Wells Fargo LO that told me the exact opposite. She claimed that it is a Fannie/Freddie requirement. Academy Mortgage didn't do that.
I'm guessing your LO was just plain ole mistaken. Everything I've read points to how 401k loans are secured loans basically against yourself and do not count towards DTI.

This is correct. If you decide to not pay back your 401(k) loan, you don't owe a creditor for a debt - the amount will just be taxed and you will be slapped with an early withdrawal penalty.

Re: Advice needed for 401k loan days before closing

Anonymous — Thu, 21 May 2015 15:40:50 GMT

@Anonymous wrote:
@merc64 wrote:
@dragonfly66 wrote:
Youdontkillmoney, that is so strange. It was a Wells Fargo LO that told me the exact opposite. She claimed that it is a Fannie/Freddie requirement. Academy Mortgage didn't do that.
I'm guessing your LO was just plain ole mistaken. Everything I've read points to how 401k loans are secured loans basically against yourself and do not count towards DTI.
This is correct. If you decide to not pay back your 401(k) loan, you don't owe a creditor for a debt - the amount will just be taxed and you will be slapped with an early withdrawal penalty.

That's right. I work in the 401(k) industry. It becomes a deemed distribution as if you withdrew the money. You only get the 10% excise tax if youre under 59.5. It becomes taxable income in either case, however. 1099R is created.

Loan becomes deemed at the end of the quarter following the quarter in which the first payment was missed.