Using 401k To Purchase Home Down Payment And Closing Costs
This Article Covers Using 401k To Purchase Home Down Payment And Closing Costs:
Most homebuyers can easily afford the monthly housing payments on their new mortgage loan. Coming up with closing costs is normally not a problem. Closing costs are paid by either a seller concession and/or a lender credit. Or a combination of both. Coming up with the down payment is the biggest hurdle for most homebuyers. In this article, we will cover the following topics:
- The down payment and closing costs on home purchases.
- Mortgage loan programs that do not require down payment requirements.
- Sources to come up with the down payment and closing costs.
Using 401k retirement plans is one of the most common ways to come up with a down payment on home purchases.
The Down Payment and Closing Costs on Home Purchases
Homebuyers need down payment and closing costs on home purchases. VA and USDA Loans are the only two loan programs that do not require a down payment. Both VA and USDA Loans are government loan programs that offer 100% financing.
Using 401k To Purchase Home is allowed by lenders. We will discuss Using 401k To Purchase a Home on this blog.
Down Payment Requirements on Home Purchase
The number one issue most home buyers face is coming up with the down payment.
No matter how much income you make, it is often difficult to save money. This holds true for consumers with a large household. An average trip to the grocery store for a family of five can easily run $350.00 plus.
Average car payments are $400.00 per month. Nothing is cheap anymore. You would be surprised by how many Americans making over $100,000 have little to no savings.
Some folks discipline themselves in putting aside a certain portion of their paycheck into savings. However, with rising home prices and rising interest rates, the down payment requirement for a home purchase keeps on rising.
Using 401k To Purchase Home is allowed by lenders. We will delve more into using 401k to purchase a home in this article.
Mortgage Guidelines on Using 401k to Purchase Home
Using 401k To Purchase Home is allowed by lenders.
All loan programs allow using 401k to purchase a home. Using 401k to purchase a home is one option buyers have to come up with down payment and/or closing costs. Using 401k to purchase a home is a very easy process.
Many employees often use their 401k if they are short of down payment and/or closing costs. Using 401k to purchase home does not affect borrower’s debt to income ratios. The reason is that you are borrowing against your own funds. Therefore, the DTI is not affected.
Borrowers are not canceling your 401k when using 401k to purchase home. You are borrowing against it. 401k holders can borrow a maximum of up to 60% of the value of your 401k.
Things to Consider When Borrowing Against 401k
There are certain considerations borrowers using 401k to purchase home need to think about.
If you borrowed from a 401k retirement fund and decide to leave to a different company, you only have 60 days to repay the amount borrowed. Workers cannot be contributing to the 401k Plan while there is a pending loan.
This temporary suspension is not being able to contribute to the 401k means the employer will not contribute their matching funds. Workers can withdraw funds from a 401k when they retire with no penalties.
There are emergency withdrawal clauses where workers can withdraw from their 401k’s. This is referred to as hardship withdrawals. It comes with a 10% tax penalty.
Using 401k to purchase a home is allowed if the funds are being borrowed against the 401k. Needs to be promised that it will be paid back. If you are not able to make the repayment on the borrowed funds, the balance is treated as a withdrawal that will be subject to 10% tax.
When Do I Need To Make Commitment
Borrowing from 401k to purchase homes does not take long. Gifted funds are allowed for the down payment and closing costs. If the home buyer was promised a gift by a family member but the family member later changed their minds, the buyer can tap into their 401k. It normally takes less than 7 days for the borrower from 401k.