Can you use 401k loan (hardship) for closing

[Anonymous]

My current scores are  from this site, TU 674 EQ 649, EX ???  I haven't had any collections,etc for 2 yrs and all from the past are paid off.  2 CC's paid to 0, 1 cc is almost 2 yrs old, 1 is 6 months old, 2 installment loans one is almost paid from 4500 to 500.  never late, the other I have about 5500, from starting 10000. never late.  My question is I have an exisiting 401k loan out through work, but my employer said I can withdraw a hardship loan up to 13000.00  for closing costs.  I only have about 1000 in savings but am interested in USDA. Does this sound like a possibility?  I am just curious if a hardship can be used for closing costs?  Ty for any replies 

[germaine47]

I just sent a copy of my GFE from the MB and my work had the funds deposited into my checking account within 48 hours.

[thankfulheart]

I'm not an expert, but have been looking at this myself.  I understand that there are tax implications (penalties, etc), but haven't had the time yet to fully research that.  You are also barred from making any deposits (therefore losing any matching deposits from your employer) for 6 months. Then there is the interest income lost over the repayment period.  I read somewhere about taking a loan instead of the hardship withdrawal, but haven't fully read up on that, either.  You can't pull the full amount of the 401K, but you don't lose your contributions and don't have the IRS thing.

I'm going to spend some time Googling it, but the general consensus from my overview is that the hardship withdrawal generally isn't the best choice if you have any other options.

[Anonymous]

Plain and simple is YES.  However there are several things to consider.  We had a 401K loan that we paid 300.00 a month on.  We decided to take out a hardship withdrawal loan to help with cost for the house and to pay off our 401K loan.  Each employer sets their own perameters.  My employer will only allow for you to take out a hardwal after exhausting alll other methods of getting the money.  Meaning they will require you to take out a 401K  instead of a withdrawal.  You can only make a withdrawal if you have already exhausted the loan option.  We just had to send in our Contract and GFE to get our hardship loan.  You have a 10% penalty and then you are also taxed on the amount that you take out as taxable income at the end of the year.  So basically for us it was 25% and we choose to have them go ahead and tax the 10% out of the funds they were distrubuting to us.  I hope all of this is making sense : )

We are not able to contribute to our plan for 6 months (this would be true for all 401K hardship withdrawals/government imposed) but we were able to pay off our 401K loan.  We did this so that we could lower our debt to income ratio plus having 300.00 extra a month is nice for someone in our income bracket : )

Taking out a hardship loan does not count against the debt to income ratio because it is not something you owe.  However, if you decide to take out a 401K loan that payment will be added into the ratio because it is a loan and you have to pay on it monthly.  I hope you got the answers you needed. 

[Anonymous]

Oh and if you were really concerned about not being able to contribute each month my advise would be to save the amount you would normally contribute and when the six months passes change your contribution percentage to take out that amount for the next few checks and just replaced the missing funds from your paycheck with the money you saved.  That is our plan anyways.  

[thankfulheart]

Now, see, I was told that a 401K loan did NOT count against DTI, since it was already your money to start with.

From Fannie guidelines:

"Loans Secured by Financial Assets

When a borrower uses his or her financial assets—life insurance policies, 401(k) accounts, individual retirement accounts, certificates of deposit, stocks, bonds, etc.—as security for a loan, the borrower has a contingent liability.The lender is not required to include this contingent liability as part of the borrower's recurring monthly debt obligations provided the lender obtains a copy of the applicable loan instrument that shows the borrower's financial asset as collateral for the loan. If the borrower intends to use the same asset to satisfy financial reserve requirements, the lender must reduce the value of the asset (the account balance, in most cases) by the proceeds from the secured loan and any related fees to determine whether the borrower has sufficient reserves.

Loans that are secured against a liquid asset owned by the borrower (such as a 401(k) or mutual fund) do not have to be entered as liabilities in Section VI Liabilities if the appropriate documentation is provided"

[Anonymous]

All I know is that they were going to count mine.  Could it possibly depend on the type of mortgage?  I am in underwriting for the USDA Rural Guaranteed loan.  I am no expert but these are just my experiences.  My broker was not going to include it until he saw that the payments were taken out of my husbands paychecks.

[Anonymous]

Thx for the replies.  The current loan from 401k is taken out of the paycheck but my human resource tell me I have 13,000 and some change available for closing with penalty, etc no paying back.  As far as not being able to contribute for 6 months, I am not sure will check into that.  I have been at my current job 12+ yrs & do not  plan on leaving anytime soon.  Also, I contacted my USDA office in my state, is there other mort brokers companies that I can go that avenue through usda?  I am very new to this, first time buying & have no clue what I am doing.  thx