Whittier Mortgage News

Borrowing from your 401K to finance the purchase of a home

October 3rd, 2014 7:55 PM by Steven Lazerson

Less then 10% of home buyers use their 401(K) as a down payment source to purchase a home. Many potential home buyers are not aware that they may be able to borrow funds from their 401(K) to purchase a home without incurring any penalties or pay any income taxes on the money that they use*. Not all 401(K) plans allow you to borrow money against them so consult your plan administrator to see if this option is available to you. Usually there may be a limit of $50,000 or up to 50% of the amount of money available in your plan. Usually the loan will need to be repaid within 5 years. The good thing is that the interest you are charged is going back to your account so that you are the ultimate beneficiary of these funds. The interest that is charged is typically at a lower interest rate then would be charged elsewhere since the money is typically well secured by the funds in your account.

When considering borrowing against your 401(K) account, remember that the payments that you will have to make to repay the loan will be included in the debt ratios that your lender will include when qualifying you for a mortgage. If you fail to repay the loan within the time frame allotted then you will be subject to an early withdrawal penalty if you are under 59 1/2 and the amount that you took out will be treated as taxable income so be prudent in your evaluation if this is the best course of action for you.
Before considering using your 401(K) funds for this purpose make sure to consult your tax advisor first to see if this is your best course of action.

Steven Lazerson- loan consultant
TLC Financial Services, Inc.

Licensed by CA Bureau of Real Estate. Lic # 01113093. NMLS ID # 323900. All loans subject to approval. Rates, terms and fees are subject to change without notice. Not all borrowers will qualify. 
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Posted in:General
Posted by Steven Lazerson on October 3rd, 2014 7:55 PM

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