401k Loan and DTI?

[jrands]

Hi Everyone,

Hopefully someone can provide some clarity on this topic. I've read that a 401k loan typically does not factor into the overall DTI. However, a lender I am working a pre-approval with states that it does. It is what-it-is I suppose, but just wondering if this is normal? Again, everything I've read up to this point indicates that it is not.

TIA

[ShanetheMortgageMan]

For Fannie Mae, Freddie Mac, FHA, VA & USDA a loan from your 401k would not be included in your debt to income ratio. 

Are you qualifying for one of those programs?  If so, then the loan officer/lender you are talking with is incorrect.

If you aren't qualifying for one of those programs, then 401k loans typically will still not be included in your debt to income ratio, but it's possible the program you are qualifying for has a different guideline.

[jrands]

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@ShanetheMortgageMan wrote:

For Fannie Mae, Freddie Mac, FHA, VA & USDA a loan from your 401k would not be included in your debt to income ratio. 

Are you qualifying for one of those programs?  If so, then the loan officer/lender you are talking with is incorrect.

If you aren't qualifying for one of those programs, then 401k loans typically will still not be included in your debt to income ratio, but it's possible the program you are qualifying for has a different guideline.

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Thank you. Yes, the preliminary terms they are working on providing are for an FHA preapproval. The LO says that it is the UW who is asking for this information. Additionally, the LO also stated that the notion that 401k loans aren't typically included in DTI is also incorrect. As you mentioned, maybe it is the case that it normally is not included, but it's an overlay specific for this lender.

The other lenders I am working with have not asked for this type of information. However, the lender who is asking for this information has given me a preliminary loan amount much higher than the other two.

[ShanetheMortgageMan]

FHA refers to 401(k) loans as "collateralized loans" and does not consider them as debt.  See below page from the guidelines:

Further info from the Handbook 4000.1: