Home Buying in Denver>Question Details

Jklooking, Home Buyer in Denver, CO

Will taking a loan from 401K to make mortgage down payment impact the financing (approval), what about a 401k withdrawal?

Asked by Jklooking, Denver, CO Sun Mar 7, 2010

Help the community by answering this question:


Hi Jklooking,

You should talk to a lender about this question.

Call: Rita Tsalyuk
Direct Mortgage Solutions

She can answer all of your questions. Tell her that I referred you.

Best regards,

Ethan Besser
Broker Associate
Keller Williams - DTC
Cell: 303.856.8980
Fax: 303.221.2289

The Besser Choice in Real Estate!
0 votes Thank Flag Link Mon Mar 8, 2010
I would rather have the money in Real Estate now than stocks.
Web Reference: http://www.owngj.com
0 votes Thank Flag Link Mon Mar 8, 2010
Brian is absoltuely correct. Make sure the 401K funds are available in your checking account well before your closing. I had a client who had an incorrect amount wired. You can imagine to her dismay the sinking feeling of not having enough money available to close on her home. Luckily we had told her to do it early in the process. So she had enough time to get it corrected. However, on a conventional loan we have to show the underwriter that your money has in fact already been transferred and the papertrail by which it transferred.


Ray Williams
Branch Manager
Summit Mortgage Denver
303.779.0591 x101
Web Reference: http://www.fhacolorado.org
0 votes Thank Flag Link Mon Mar 8, 2010
All answers are good, You NEED to talk to your lender. Your lender know what is going on and can advise you best.. You need to make sure the 401K funds will be available BEFORE you close.
0 votes Thank Flag Link Mon Mar 8, 2010
Taking a loan from your 401K WILL affect your mortgage approval. The underwriter will add back the terms of the 401K loan to your debt ratio. The upside is the interest you pay on the 401K loan is usually paid back into your account. You should also have a grace period which you could use the tax credit to replinish your withdrawal or loan, if you qualify for that. The 401K withdrawal MAY cause you to give up money through the penalty they may assess when you withdraw the money. However, you will definitely want to talk to your 401K provider to determine what the pros and cons of each of those are. You may find that the impact won't cause you to change your mind, or vice versa.

However, remember you could look to the likes of minimum down payment ranges of 3.5-5% for either FHA or conventional loans. This could be an alternative if you find the 401K option to be be favorable. Or you could even look to community down payment assistance options such as CHFA< CHAC<HOAP<NEWSED.....
Web Reference: http://www.fhacolorado.org
0 votes Thank Flag Link Sun Mar 7, 2010
I think that this would be a question for:
Your lender- is it possible
Your Accountant-what are the penalties
Your financial planner- is this a finacially sound decision

If this makes sense for you, give m e call!

Kimberly Ryan
Keller Williams Realty Success
Web Reference: http://www.buydenver.net
0 votes Thank Flag Link Sun Mar 7, 2010
With a 401k withdrawal you get hit with a 10% penalty and then your tax rate. So say another 30%. That's like borrowing money at 40% for a down payment. Need I say anymore.

Taking a loan on your 401k can seem like a good idea, but it has some risks. The worst being, that if you lose your job or take another job, the leftover amount is due in a lump sum or else it's treated like a withdrawal and you get dinged for the 40% again.

The second thing is you can't make extra payments to pay it off early. You can gather up the entire amount and pay it off but not little by little.

So with those things said you have to decide if that is a risk you want to take.

Good luck,

Daniel Herron
Personal Real Estate Consultant
Web Reference: http://Www.herronshomes.com
0 votes Thank Flag Link Sun Mar 7, 2010
While I agree that a withdrawl from your 401K is not a good idea - I think a loan from your 401K is a great tool.

We are at or near the bottom of a market cycle - from a price perspective, and it is a fabulous time to buy.

Much will also depend on where you are in your life cycle. If you are in your 20's you have lots of time to continue to put away money for retirement. If you are in your 50's - well - it may not be such a good idea to borrow.

Talk to a financial advisor. If you don't have one - get some recommendations. Buy an hour of their time and see what will make the most sense for you!

Good Luck!
0 votes Thank Flag Link Sun Mar 7, 2010
Yes, it will be counted in your debt ratio
0 votes Thank Flag Link Sun Mar 7, 2010
Speak to your tax consultant regarding possible penalties for early withdrawals--then make a determination.
0 votes Thank Flag Link Sun Mar 7, 2010
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