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401k for down payment

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401k for down payment

I am about to start the fha loan process. We will be using my 401k for the down payment. I have access to 9,500 dollars to use for the down payment. My question is will this be enough. We are looking at houses that are 160-170,000. At 3.5 % down for fha, will 9,500 be enough. All this financing stuff confuses the hell out of me. My LO said yes, but then starting talking about pmi and closing costs, and this and that, it is confusing. We will ask the seller to pay closing costs, or somehow roll it into the loan, is it possible to roll closing costs into an fha loan? thanks

 

Tonya

very excited to buy my first home!!!!!

bk discharged May 2009
starting score 520
current score 650
goal score 730
Message 1 of 9
8 REPLIES 8
Senior Contributor

Re: 401k for down payment

Just remember, if you lose your job or switch jobs, you have to pay back a 401K loan on an accelerated timescale.  90 days?  If you don't, it is treated as an early disbursement and you are assessed the 10% penalty for taking a withdrawal before retirement age.


Starting Score: ~500 (12/01/2008)
Current Score: EQ 681 (04/05/13); TU 98 728 (01/06/12), TU 08? 760 (provided by Barclay 1/2/14), TU 04 728 (lender pull 01/12/12); EX 742 (lender pull 01/12/12)
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Message 2 of 9
Senior Contributor

Re: 401k for down payment

We are also taking out 401K for down payment.  I have read, though, that the first 10K doesn't get the tax penalty if it is used for your primary home.

 

I hope I'm right on this.

 

SV

STARTING: 11/24/10 EQ-584 EXP-648 TU04-595
CLOSED FIRST HOME 8/19/11 EQ-630 EXP-691 TU04-653
CURRENT: EQ-701 EXP-??? TU08-720
Message 3 of 9
Senior Contributor

Re: 401k for down payment

I could easily be mistaken.  Perhaps there are other rules when you use the loan for a home purchase.


Starting Score: ~500 (12/01/2008)
Current Score: EQ 681 (04/05/13); TU 98 728 (01/06/12), TU 08? 760 (provided by Barclay 1/2/14), TU 04 728 (lender pull 01/12/12); EX 742 (lender pull 01/12/12)
Goal Score: 720


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Message 4 of 9
Community Leader
Super Contributor

Re: 401k for down payment

It depends on what the total closing costs are and if the seller is giving you any credit.  You should be able to get a "fee estimate" from your loan officer with all anticipated charges, so you can then see the total amount owed, and if you ask for a seller credit how it would impact your bottom line "funds to close".

 

3.5% of $170k = $5,950.  So if you have $9,500 then the rest of your costs you'd need to pay can't be more than $3,550, and you may or may not need reserves in order for your approval as well.

 

Only the loan officer who has checked your credit and run your loan through the automated approval system will know exactly how much you'll need.

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Message 5 of 9
New Visitor

Re: 401k for down payment

Hi,

I hope i am right on this. We are also taking out 400 K for down payment.  I have read though, that the first 11K doesn't get the tax penalty, if it is used for your primary home.

 

Sandyy
Message 6 of 9
Established Contributor

Re: 401k for down payment

Company programs for 401(k) are different and most will offer loans but very few will offer withdrawals while still employed.  Also, most lenders are going to consider any 401(k) loans used for down payments as a debt.

 

There is forgiveness for the first 10,000$ withdrawn from an IRA -- I'm not aware of any such law changes for a 401(k) -- from the 10% early withdrawal penalty BUT federal, state, local, etc taxes will still be owed.

Message 7 of 9
Valued Member

Re: 401k for down payment

Hello I work in the 401k industry.... You will first need to confirm with your trustee/401k provider what your plan allows.  If you take a loan out against your 401k you will only be able to borrow 50% of the vested balance, you can opt for the residential loan and it allows a 10 year repayment thru payroll deductions.  If your plan allows for hardship withdrawals the purchase of a primary residence does qualify for a hardship withdrawal however you will be accessed the 10% tax penalty and if you are under 59 1/2 you will be accessed a 20% early withdrawal penalty as well for a total of 30%.  Now you can opt not have taxes withheld at the time the funds are withdrawn but you will receive a 1099R for the full amount withdrawn which will have to be filed with your 2012 taxes for 2011 tax year.  If you know your tax situation is going to be favorable than not paying the taxes up front may be better.  I hope this information helps!

Message 8 of 9
New Member

Re: 401k for down payment

Thank you for all the replies, they have helped.

bk discharged May 2009
starting score 520
current score 650
goal score 730
Message 9 of 9
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