Confused Con…, Home Owner in Saint Petersburg, FL

Is it normal practice for lender to ask a customer to withdrawl funds from a 401k account to use as liquid assets?

Asked by Confused Consumer, Saint Petersburg, FL Fri May 20, 2011

I am currently trying to refinance and renovate my home and after 4 months of working with my current financial instittution and setting up a closing date, they are now telling me that I need to come up with $12k to 15k in cash or liquid assets to proceed. I went through a preapproval process in order to make sure that I would have suffient equity in my property to make the necessary renovations. Throughout this process, I have continually asked what funds I would need for closing costs and additional fees. They stated numerous times that all monies would be built into the loan. I have communicated with them that the maximum amount of money I can come up with is half of what they are asking and also asked if there was anyway to reduce the loan amount. I am a little upset with the fact that they are now insisting that I withdraw the funds from my 401k to proceed.

Help the community by answering this question:


The situation you described is NOT a normal practice and it appears your lender is "learning" on the job. They should have known up front the guidelines for the type of loan you were looking to obtain. Since they did not (or failed to share it with you if they did) they are now asking for your "contribution" to the program. I would suggest walking away immediately and contacting a reputable lender who can tell you in advance through a Good Faith Estimate (required by Federal law) that will tell you on day one, how much money you will need if any for the type of loan you are looking for.

If you need further assistance, please feel free to contact me, Shawn Washinko, Charles Rutenberg Realty, (813) 258-1242 or
1 vote Thank Flag Link Fri May 20, 2011
Is this a bank owned or short sale? I recently had a buyer under contract with a bank owned condo. One week before we were to go to closing the bank came back and said that the buyer had to pay an extra $14000 to cover "costs." This was in addition to the normal HUD closing statement expenses. So if you are purchasing a REO/bank owned or short sale property the terms can change at the end of the transaction prior to settlement. If this is purely a lender altering your loan at the 11th hour I would take the package to another lender and see if they can put your loan together. Do not go to a lender on line. Make sure you are in front of the person and can really communicate.
0 votes Thank Flag Link Sat May 21, 2011
RESPA requires them to give you a written GFE within 3 days of the date they first pulled your credit report. Time to get a different lender.
0 votes Thank Flag Link Fri May 20, 2011
Good advice and suggestions already.

My personal observation: Sounds as if you did everything right. You went through a preapproval process. You kept asking what funds you would need, and you received one answer. Now they're changing their story, asking for a huge extra amount . . . one with significant negative tax implications for you. It all sounds really suspicious. Unless the problem can be straightened out quickly, I'd be tempted to call the whole thing off and take my business elsewhere.

Hope that helps.
0 votes Thank Flag Link Fri May 20, 2011
Don Tepper, Real Estate Pro in Fairfax, VA
I can take a look at your situation and give you a second opinion. I need additional information such as loan amount, type of loan(FHA, Conv, VA),cash in hand, scores, etc. It won't cost you a penny and you will have a different perspective. Call or email me over the weekend.

Jose Morales
Florida Mortgage Coach
“We Coach You Through the Mortgage Process”
0 votes Thank Flag Link Fri May 20, 2011
I'd ask them to lay out what they thought the costs were at the beginning and what they are looking like now so you can see exactly where the differences are. To be off $12-15k on how much funds you'd need to close is unfathomable, I can see a few months of tax escrows or something along those lines but definitely shouldn't be off by that much.
0 votes Thank Flag Link Fri May 20, 2011
Anything over $10,000 pulled from a 401K for fist time residential purchase will be taxed with penalty. If you have to , make sure to not exceed the 10,000 allowable withdrawal. Talk to your account accountant before doing it.

Tony Vega
Charles Rutenberg Realty
0 votes Thank Flag Link Fri May 20, 2011
This sounds highly suspicious. I am a real estate broker who invests with funds from my private IRA. However, since the lender sprang this requirement on you at the last moment makes me suspicious about the intentions of this lender. Did the lender provide information on the tax consequences of this withdrawal or the time limits you have to pay this money back into your 401K. If not, run FAR away. If you'd like more information about this, email me at
0 votes Thank Flag Link Fri May 20, 2011
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