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Need a loan for a duplex out of state. Are funds from a 401K able to be used for the down payment?

by john509 from Henderson, Maryland. Aug 12th 2016 Reply

Yes but you need to make sure you show the terms of withdraw and the proof of transfer into your bank account. If you are paying it back you need to make sure your debt to income ratio is still ok.

Aug 12th 2016
William J Acres (William_Acres)
#2 ranked lender in Arizona - 7,797 contributions

Yes.. but if you are buying an investment property, you need more than down payment.. the lender will require that you have "Liquid asset's" set aside for reserves. (401K funds are not considered "Liquid").. Depending on the automated underwriting results, you could be required to have up to 24 months reserves (cash asset equivalent to 24 monthly payments on the Investment property).. Also, there's a difference between borrowing against a 401K and withdrawing funds.. if you borrow against the 401K, then the lender might require the pay back payment be added to your debt to income ratios.. if you are withdrawing funds, then that would be acceptable, but remember you will be hit with taxes and a 10% early withdrawal penalty.. You might want to talk to a financial planner and let them analyze the costs you end up paying by early withdrawal against the potential gains you might realize with a new investment property.. having to liquidate a 401K might not be the best financial move, but if this property is so far in the money that you cannot lose, then it might be worth it.. Although I don't know your exact situation, I have come across this scenario before.. I'm a 28 year seasoned real estate investor, and the one thing that I have seen dozen's of times in my RE career. is that long distant landlords rarely work out .. for me, if a water heater fails, I can run to the home improvement center and buy one for $200 and put it in myself.. but for a LDL... you have to hire someone, and that's going to cost you 3 to 5 times a much as it would if you did it yourself.. Also, it's not going to be convenient to just "Drive by" to check up on the tenants.. I've taught seminars on how to get into RE investing, and if you've never done ti before, then the easiest way to start is to go buy a new primary residence, and rent out the home your exiting.. you get to put the minimum down on the new home (3% to 5%), and in most cases, you can include the potential rental income from the exiting home for qualify purposes.. Buy the new home in the same neighborhood, and it's even better,,, you can dive buy it anytime to be sure they are taking care of it.. But again, talk to a financial planner or seasoned RE investor and run your scenario by them.. once they see the complete picture, only then can you get good advice.. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. William J. Acres, Lender411's number ONE lender in Arizona. 480-287-5714 NMLS# 226347

Aug 15th 2016
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