Using Your 401(k) to Purchase a Home

Using Your 401(k) to Purchase a Home

The concept of a 401(k) can confuse a lot of individuals. It is confusing to those who are not too seasoned in their professional career. If you are also someone who is interested in owning a home, knowing how 401(k) can play into the home buying process can be a game changer. Buckle up for these tips on 401(k) home loan rules. 

401(k) for a home loan

Why does your 401(k) matter when you are applying for a mortgage? You could utilize a 401(k) money to help pay for the down payment of your home. But there are a few catches that can end up hurting you in the long run. For instance, if you leave the business where you have your 401(k), you will need to pay that money back in sixty days or you will have to face a tax penalty. So make sure you do your research prior to taking money out of that retirement savings.

Does 401(k) affect your home loan approval?

Having a 401(k) set up as an obligation could leave you wondering  whether it affects mortgage approval. This does not impact your potential mortgage approval with lenders. If you  are worried about a potentially high DTI, this is one factor that you should not be concerned about. 

Click here to learn what to know when buying a fixer upper!

Rules on 401(k) home loan 

Something you might have heard about is the possibility of utilizing your 401(k) to help in your home financing process. As mentioned before, just having a 401(k) does will not make an impact on your approval. This is seen as a viable source to pull funds from because it is an account that you are pouring money into yourself. But the largest thing to beware of is making sure you do not plan to leave your position soon. If you leave while having a 401(k) loan active, there will be a lot of negative implications.  

Utilizing a 401(k) for a down payment as a first-time home buyer?

Not only does having this and taking a loan from it not negatively impact you, you could actually use a 401(k) loan toward your down payment. If you are starting to touch on the idea of looking into a house and stressing the initial costs, there is an option. If you have a 401(k) that is building up, you can utilize those funds to help toward your down payment. And using it this way also has no negative implications toward your possible approval. Just make sure you are still keeping in mind that you’ll need to stay at your position during this time. 

Now that you understand the rules, what should you do now?

If you are still curious about the effects of a 401(k) or using funds from it, on a mortgage application, talk to our loan officers. They will be able to not only look into your full financial picture, but also walk you through the whole house financing process. Our trusted mortgage professionals will be your best friend through this. 

There is enough to stress about when it comes to your finances and applying for a home mortgage. Know that having concerns about your 401(k) with your mortgage application does not need to be one of them. You should feel equipped to proceed with your newly learned knowledge of 401(k) home loan rules and know you have support with us.

Do you have a question about home loans? Call 949-392-6400 to get in touch with the Reed Team today!

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