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Hi and thank you for taking the time to read this post.
I just want to know what the guidelines are when using your 401k as reserves when buying a house. I am not sure if this will be something I have to end up doing yet but I have a few questions. First, I'm assuming if you are currently paying a loan on it that you can't use it, correct? And would a lender allow you to use it right away if you paid that loan off or is there a certain time that has to go by after paying off the loan for this to be allowed? Please let me and add anything I might have left out. Thank you.
Total vested amount, minus outstanding loans, multiply remainder by 70%. Must be able to prove access prior to death or leaving job. (Usually, just printing the Web page with loan procedures or withdrawal process will prove access).
Total vested amount, minus outstanding loans, multiply remainder by 70%. Must be able to prove access prior to death or leaving job. (Usually, just printing the Web page with loan procedures or withdrawal process will prove access).
Hmmm. This must vary by lender and/or location. I'm in New Hampshire, and when I bought my current house in May 2012 and kept my first house as a rental, I was able to use my entire 403(b) retirement account (equivalent to 401(k)s) as reserves (no loans allowed and it is fully vested). I thought it was pretty odd since I have no access to those funds (which are substantial) until I retire (or my heirs would get them if I die before retirement). My lender didn't care -- they did NOT require anything that said I had access, all they wanted was the current balance.
Again, I thought this was so odd that I verified it with the loan processor AND underwriter before proceeding with the loan. What might make a difference is that my lender services their own loans -- they don't package them and sell to investors. SmartMoney, maybe what you wrote is a requirement for the investors that buy mortgages?
Hmmm...that's interesting to say the least. I will check on that. Thanks.
Lenders that sell off their mortgages right after getting them (as many lenders do) have to follow the "rules" of the companies that buy those mortgage "packages." Since my bank doesn't sell their mortgages, they may have different rules.
The procedure that SmartMoney outlined was roughly my experience when I used my 401k as reserve. They actually didn't care so much about the proof of access, but definitely only considered 70% of the amount.
Lenders that sell off their mortgages right after getting them (as many lenders do) have to follow the "rules" of the companies that buy those mortgage "packages." Since my bank doesn't sell their mortgages, they may have different rules.
Good luck, buying a house is fun!
Did you even need the 403b funds, was your checking and savings enough?
The procedure that SmartMoney outlined was roughly my experience when I used my 401k as reserve. They actually didn't care so much about the proof of access, but definitely only considered 70% of the amount.
You know, it's quite possible that they DID only count 70% of my 403(b) -- that account is fairly large so 70% would have been way more than I needed (10% would have been more than I needed!). I didn't even ask them how much they counted -- I'd been more concerned about confirming that all they needed was the balance, since I was flabbergasted that they would count it at all since I have no access to the funds.
Quote:
Originally Posted by thelopez2
Did you even need the 403b funds, was your checking and savings enough?
That's a good question, so let me clarify. My checking, savings, and other investment accounts (Vanguard mutual funds) had fairly large amounts in them, but after subtracting the down payment I was making, they would NOT have been enough for the "reserves" requirement, since I had to have enough for BOTH houses for 6 months (IIRC, it was 6 months). So my lender definitely used my 403(b) balance to satisfy the requirement.
You would have access to the 403B funds if you were to lose your job. Yes, there would be taxes and 10% penalty (why they only count 70% of the balance), but you would have access.
You would have access to the 403B funds if you were to lose your job. Yes, there would be taxes and 10% penalty (why they only count 70% of the balance), but you would have access.
I guess that IS the rationale, but if I were to lose my job, I would likely have other things to worry about than just paying my mortgages.
That reason never occurred to me as I have a job I basically CAN'T lose (tenured college prof) and my lender knew that of course. But your comment makes sense as to why such funds CAN count!
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