@Anonymous wrote:
@dragonfly66 wrote:
I MAY need to do an actual withdrawal because I am unable to get a loan against my 401K for a down payment. I realize it's not ideal, but there is a whole backstory as to why it's happening this way. I just need to know if mortgage companies would have an issue regarding a withdrawal as opposed to a loan against my 401K. Does anyone have any insight?
Yeah, my insight is DON'T! You're going to get hit with a 10% penalty right off the bat for early withdrawl. Then, 20% will get withheld by your plan provider for taxes. Now that you know all that, consider how much you will actually have to withdraw to cover those penalties and withholdings and be left with the amount you need. This money will be considered taxable income. When combined with your regular income, there's a chance that you will be bumped into a higher tax bracket.
In addition to this being a VERY, VERY expensive down payment, you will have to claim that much less money available for your mortgage reserves, since the 401k is currently one of your assets. I have a feeling it's your primary asset if you're considering taking money out of it for a down payment.
Borrowing against your 401k has its disadvantages as well. If you leave your company, you have to pay the loan back. If you don't, it's basically the same thing as taking a withdrawl. Same penalties and withholdings will be assessed.
Are you able to get a mortgage WITHOUT touching your 401k? That would be the least expensive way to go.
I'm aware of paying the loan back if I leave the company, but I've been there 5 1/2 years now and don't have any plans to leave. Also, my 401K plan doesn't assess penalties and witholdings on a loan, just a withdrawal. I'm going to do what I can to avoid that scenario, I was just curious as to how that type of withdrawal is viewed by the mortgage companies.
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