There are severalissues to consider when withdrawing funds from a retirement plan to purchase a home.
1.) What limitations does the 401(k) plan place on withdrawals?
2.) Can you borrow against the 401(k) rather than withdrawing (employe question)?
3.) You will not pay an early withdrawl penalty for the purchase of a primary residence, but depending on the plan, you may have to pay income tax
4.) You should speak with your HR folks AND a CPA before making any chnages to your 401(k)
5.) If the 401(k) withdrawl is in the form of a loan, the underwriter will need information from the plan provider regarding the terms of the loan - amount, repayment term, interest rate, and monthly payment - which will be included in your qualifying debt ratio.
FHA or US RDA loans may be a better alternative.
FHA requires just 3.50% down payment. The down payment may be from your own funds, a gift from an immediate family member, or a grant from a gov't agency.
US RDA loans require ZERO down but are limited to rural areas. You can check to see if your prospective home is eligible by checking this site: htt://www.eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
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