Pension Loan (payment schedule, 401k, approve, financial)

[JonathanBrown]

I told out a loan from my pension that is directly taken from my paycheck. Does that count as debt in my debt to income ratio?

[Pfhtex]

No.
Similar to 401k loan repayment.

[Spanky25]

Originally Posted by JonathanBrown

I told out a loan from my pension that is directly taken from my paycheck. Does that count as debt in my debt to income ratio?

Cheaper to go to a loan shark, lol.
You PAY back that loan with AFTER TAX dollars (so your taxed)
Then you pay taxes again when you withdraw it at retirement.
I’m not even talking about the compounding/stock market returns that are lost.

So, don’t believe those who say “But your paying yourself back”.

[terracore]

"You PAY back that loan with AFTER TAX dollars"

ANY loan a person repays with income is going to be with after tax dollars. It's a simple matter to look at the data and figure out how much any loan is going to "cost". In my case I took a loan out right before the market tanked in 2008 and basically "saved" all that money from taking a free fall. I repaid the loan as the market was recovering (basically buying back into the markets at much lower cost than I had taken it out and watching it rise up). Essentially I used the same vat of money to buy into the bottom of the market twice without having to see it go down in between. Instead I got a house out of the deal. So yeah, I paid myself back and then some.

"Does that count as debt in my debt to income ratio?"

In regards to getting a mortgage it depends on the underwriter so you might only find that out by shopping around. When I was getting my loan one bank counted it as debt and another didn't. They don't look at overall debt so much as they do the amount of the monthly payment. If you take out a loan and it has a flexible repayment schedule you'll want to set it for the longest repayment date. Like if you borrow $5k and you plan to pay it off in 12 months so that's whats on your pay stub they could hold that as a $420/month debt liability, but if you set it for 60 months they will only "see" it as a $90/month debt liability. You could shorten the loan term after you get your loan if you want. While its not technically affecting your debt:income ratio it could have the same effect as if it did depending on the financial institution.

[SmartMoney]

When I was getting my loan one bank counted it as debt and another didn't.

Different loans qualify different ways. Conventional loans do not count payroll paid loans that are from retirement. Some loans look at the net income after taxes, living expenses and bills are paid, such as VA loans.

Also, common sense must prevail. If a buyer selects a payment plan that requires a large portion of the paycheck go to the loan, they may exclude that borrower's income altogether. Two files come to mind. The first was a 401 loan with a steep payment, leaving minimal net to live on. Another, wasn't even a loan, but a maximized 401 contribution, escalated in the 2nd half of the year, I think in September. The borrower was going for the max match and annual contribution, but it seriously knocked down her net (there was also a loan coming from pay). In both cases, the UW (2 different employers) said the ATR - the ability to repay - was compromised). They didn't care it was voluntary - ATR is taken seriously, the borrower can sue the lender if they approve a loan that puts them in financial jeopardy.