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make sense. I will call my 401k company and see if they can give me some information.
Quote:
Originally Posted by pbnj07
When you borrow against your 401k, you don't have to pay taxes (or penalties) because you pay it back. With withdrawals, you incur taxes and penalties.
I guess it won't be a problem as long as I have enough cash in my bank accounts to show I can make my down payment without any 401k loan?
Quote:
Originally Posted by pbnj07
Borrowing against your 401K does not show-up on your credit report, but a mortgage lender might notice it if you're asked to submit detailed paystubs that show a line-item deduction for a 401K loan payment.
if you're still making contributions to a 401k via an employer, you typically can borrow the money and pay it back through payroll deductions with interest (you borrow your own money and pay it back to yourself with interest which probably beats the return you're getting now)
Thanks for your detailed answer! It would be a good time for me to start managing my 401k accounts. I will take all your suggestions into my consideration. I do have enough reserves in my bank account, so if the lender requires reserves, probably I will be ok.
Quote:
Originally Posted by ROY DUBOSE
well, there is a difference --
if you're still making contributions to a 401k via an employer, you typically can borrow the money and pay it back through payroll deductions with interest (you borrow your own money and pay it back to yourself with interest which probably beats the return you're getting now) -- downside to this is the monthly payment gets added into the ratio calculations for a loan
if you're planning on taking the cash out of previous 401k account, it's considered a withdrawal (can you say liquidation?) and subject to income tax either at the time of withdrawal or for certain next april 15th
if the lender requires reserves (ie savings or a 401k) to approve the loan, then you could have a problem too
my disclaimer -- i ain't no financial expert so it might be good to have extensive conversations with the funds manager and your loan officer
I think you also need to look at the big picture: if you need to get at 401k funds to get a house, can you really afford it? I know you can probably find a way to get a those funds with minimal penalty and of course it is your money... But I would suggest that if you need to dip into your retirement, especially in this economy, then maybe you should reconsider the wisdom of the purchase. Being able to secure the funds is not the same thing as being able to afford it.
I think you also need to look at the big picture: if you need to get at 401k funds to get a house, can you really afford it? I know you can probably find a way to get a those funds with minimal penalty and of course it is your money... But I would suggest that if you need to dip into your retirement, especially in this economy, then maybe you should reconsider the wisdom of the purchase. Being able to secure the funds is not the same thing as being able to afford it.
Given the OP's comments, he/she sounds financially astute & big picture oriented. IMO, borrowing against the 401K isn't "dipping" into it. A couple of big picture items from my perspective:
- as a tax payer, I applaud the dude who would put 20% down (however he/she does it). The OP is far less likely to have his home foreclosed on with a 20% down payment...since he has skin in the game. (unlike so many of those who had foreclosures & all those bail out loan mods that so many who are "sick of california" took advantage of).
This would result in my 11 y/o kid (& his kid & his kid's kid) not having to pay for another loan.... like he'll have to pay for the tens of thousands of loan mods & foreclosures that took place that have & will take place over the past few years...all thanks to the idiot bush & the liar obama (& all the slimy fame wh*res in congress). To me (very selfishly).... this is VERY much "big picture".
- but aside from my economic macro facist comments.....imo it makes logical economic sense (for the OP) to put 20% down (thus avoiding PMI & also getting a down & dirty rate on an 80% loan). Makes more sense (to me) than getting a car loan or a pool loan (which thousands of folks get in Austin every year).
Last edited by hound 109; 07-08-2010 at 12:04 PM..
So if I read all of this correctly, I can take out of my 401K at about 3% interest, and pay that interest back to myself?
Not that I need it for a down payment, but IF I increase my down payment that lowers the total interest I pay over the life of the loan, and even the loan fees (which are a percent of amount borrowed).
Paying 3% back to myself is better than paying 4% to the bank.
And with a huge chunk of my 401K in a money market type fund anyway (but without the advantage of the government insurance that a bank money market fund would give me), it seems as if doing this would save me money.
So now I am wondering why more people don't do this?
My home purchase is scheduled to close next week, and they would not even allow me to get a new rate (based on rates having dropped since I locked in), because they know I do not have time to just get a different loan. I am not sure how much they would be open to, related to changing any terms at this point.
As for the comments related to this effecting one's ability to get a loan; for my loan they are scrutinizing EVERY dollar I have, might owe, and more.
They seem to want verification of stuff they should not even care about.
I am starting to feel like everything I own is collateral for some sort of high risk loan, although I have an excellent credit rating.
Some things they want that I am not sure why they should care about (assuming the house I am buying is collateral for the loan):
- copy of insurance for my OTHER house
- copy of Title on my OTHER house
- proof of amount of taxes I paid last year on my OTHER house
- copies of stock sales (I guess this makes sense because that explains the influx of money into my bank account, of the down payment money).
The latest thing they asked for was a copy of the cancelled check from the payment of my estimated federal income taxes for 2009.
(Good thing I owed this year, or I would have likely not bothered to file the extension, and just delayed doing the taxes.)
I am seriously wondering if the loan company my Realtor referred me is the route I should have taken.
It is a local Austin company, and seems to give really good customer service.
But I had no idea, that they would need documentation for so many things.
I am sure the last time I bought a house, I did not have to provide more than proof if income, and allow them to obtain my credit report.
So if I read all of this correctly, I can take out of my 401K at about 3% interest, and pay that interest back to myself?
Not that I need it for a down payment, but IF I increase my down payment that lowers the total interest I pay over the life of the loan, and even the loan fees (which are a percent of amount borrowed).
Paying 3% back to myself is better than paying 4% to the bank.
And with a huge chunk of my 401K in a money market type fund anyway (but without the advantage of the government insurance that a bank money market fund would give me), it seems as if doing this would save me money.
So now I am wondering why more people don't do this?
My home purchase is scheduled to close next week, and they would not even allow me to get a new rate (based on rates having dropped since I locked in), because they know I do not have time to just get a different loan. I am not sure how much they would be open to, related to changing any terms at this point.
As for the comments related to this effecting one's ability to get a loan; for my loan they are scrutinizing EVERY dollar I have, might owe, and more.
They seem to want verification of stuff they should not even care about.
I am starting to feel like everything I own is collateral for some sort of high risk loan, although I have an excellent credit rating.
Some things they want that I am not sure why they should care about (assuming the house I am buying is collateral for the loan):
- copy of insurance for my OTHER house
- copy of Title on my OTHER house
- proof of amount of taxes I paid last year on my OTHER house
- copies of stock sales (I guess this makes sense because that explains the influx of money into my bank account, of the down payment money).
The latest thing they asked for was a copy of the cancelled check from the payment of my estimated federal income taxes for 2009.
(Good thing I owed this year, or I would have likely not bothered to file the extension, and just delayed doing the taxes.)
I am seriously wondering if the loan company my Realtor referred me is the route I should have taken.
It is a local Austin company, and seems to give really good customer service.
But I had no idea, that they would need documentation for so many things.
I am sure the last time I bought a house, I did not have to provide more than proof if income, and allow them to obtain my credit report.
LOL...we just went through the same experience. They wanted documentation for EVERYTHING. Some of their requests seemed unnecessary, but we obliged to avoid further delays (we'd already gone through delays and more delays) For the past few weeks, we were told that we'd submitted everything necessary, but it seemed like every couple of days, we'd receive a call requesting for more information/documentation. I almost wanted to tell them, "Nevermind. No thanks."
Nevertheless, congratulations. I'm holding my breathe for the day we close. It's been exhausting.
So if I read all of this correctly, I can take out of my 401K at about 3% interest, and pay that interest back to myself?
Not that I need it for a down payment, but IF I increase my down payment that lowers the total interest I pay over the life of the loan, and even the loan fees (which are a percent of amount borrowed).
Paying 3% back to myself is better than paying 4% to the bank.
And with a huge chunk of my 401K in a money market type fund anyway (but without the advantage of the government insurance that a bank money market fund would give me), it seems as if doing this would save me money.
So now I am wondering why more people don't do this?
My home purchase is scheduled to close next week, and they would not even allow me to get a new rate (based on rates having dropped since I locked in), because they know I do not have time to just get a different loan. I am not sure how much they would be open to, related to changing any terms at this point.
As for the comments related to this effecting one's ability to get a loan; for my loan they are scrutinizing EVERY dollar I have, might owe, and more.
They seem to want verification of stuff they should not even care about.
I am starting to feel like everything I own is collateral for some sort of high risk loan, although I have an excellent credit rating.
Some things they want that I am not sure why they should care about (assuming the house I am buying is collateral for the loan):
- copy of insurance for my OTHER house
Add that into your monthly debt.
- copy of Title on my OTHER house
Make sure you are on title.
- proof of amount of taxes I paid last year on my OTHER house
Add that into your monthly debt.
- copies of stock sales (I guess this makes sense because that explains the influx of money into my bank account, of the down payment money).
Yep.
The latest thing they asked for was a copy of the cancelled check from the payment of my estimated federal income taxes for 2009.
(Good thing I owed this year, or I would have likely not bothered to file the extension, and just delayed doing the taxes.)
Helps determine your monthly income possibly (since you're past 6 mos. into 2010.
I am seriously wondering if the loan company my Realtor referred me is the route I should have taken.
Are they working for her or for you? Are they affiliated? (I'd always keep it separate.)
It is a local Austin company, and seems to give really good customer service. But I had no idea, that they would need documentation for so many things.
Welcome to Real Estate-Finance post Bush/Obama.....we have indeed passed thru the looking glass.
I am sure the last time I bought a house, I did not have to provide more than proof if income, and allow them to obtain my credit report.
Anybody that wants/needs a home loan these days, be ready to jump thru hoops.....period. If Gates or Buffet want a loan.... they too would have to hop thru hoops & pull their pockets inside out for thorough examination....period.
Probably a good time to pay cash for homes.....but dang...sure are good rates.
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