Can I use a 401k for a down payment?
Answered by Onias Derilus, Mortgage Capital · NMLS# 1859012 · Florida licensed mortgage broker
Yes. You can take a 401(k) loan or a withdrawal to fund a down payment. A 401(k) loan is often preferred because you repay yourself and it doesn't trigger taxes or penalties.
A withdrawal may incur taxes and penalties, so weigh it carefully. The 401(k) loan payment counts in your DTI. We'll model how using retirement funds affects your approval.
Two ways to tap a 401(k)
Yes, you can use a 401(k) for a down payment two ways. You can take a withdrawal, or you can take a 401(k) loan. A loan is usually the smarter move because you pay it back to yourself and skip taxes and penalties.
A 401(k) loan often lets you borrow up to half your vested balance, capped at $50,000. Lenders accept this because the debt is backed by your own retirement savings.
Watch the taxes and payment
A straight withdrawal before age 59 and a half can trigger income tax plus a 10% penalty. That is a steep price, so most buyers choose the loan instead.
Either way, the 401(k) loan payment counts in your debt-to-income ratio. We will factor it in so your approval stays solid. Talk to us before you pull the trigger on retirement funds.