Will lenders use income from 401K for mortgage approval

arizonagal · #1 Jul 28, 2007, 02:56 PM

We have over 500K in 401K and IRA's. We are over 60. We also have 300K in CD savings; our income is 60K annually.

We would like to purchase a 500K second house, put down 270K in cash and borrow 239K as a 15 year mortgage. I'd like to use one 220K retirement account to pay that mortgage. I've run the numbers; the 220K in a principal protected account (with 5 percent growth per year) will yield the monthly mortgage payment due on a 230K mortgage for exactly 15 years. I can set up a monthly payment plan from the retirement account. Will a lender allow me to do this, or will they not count those withdrawals as part of my income? If I cash out my retirement funds for a house, I will get hit with a 28% tax bill....if I withdraw it at the rate of 20K, but offset that with deductible mortgage interest, I will save that tax bite.

Has anyone out there tried to qualify for a mortgage this way?

DianeV Sr Loan Officer · Jul 28, 2007, 04:12 PM

Quote:

Originally Posted by arizonagal

We have over 500K in 401K and IRA's. We are over 60. We also have 300K in CD savings; our income is 60K annually.

We would like to purchase a 500K second house, put down 270K in cash and borrow 239K as a 15 year mortgage. I'd like to use one 220K retirement account to pay that mortgage. I've run the numbers; the 220K in a principal protected account (with 5 percent growth per year) will yield the monthly mortgage payment due on a 230K mortgage for exactly 15 years. I can set up a monthly payment plan from the retirement account. Will a lender allow me to do this, or will they not count those withdrawals as part of my income? If I cash out my retirement funds for a house, I will get hit with a 28% tax bill....if I withdraw it at the rate of 20K, but offset that with deductible mortgage interest, I will save that tax bite.

Has anyone out there tried to qualify for a mortgage this way?

This is complicated. You don't say if you have a mortgage on your current home. If so, that will be figured into your debt to income ratios along with the taxes and insurance on that home. If there is no mortgage, the taxes and insurance will be considered as debt anyway.

Whenever interest bearing assets are used to qualify, it has been my experience that the lender wants to see a history of the borrower drawing on that money previously, usually for at least a year. They will require tax returns to verify this. They also want to see that you have the ability to continue drawing for at least 3 more years.

My suggestion would be to go the the bank that holds the CD or most of your savings and discuss it with them. Try to stay away from the brokers on this. Most won't have the expertise to work this loan and you may get stalled while they shop it to different lenders.

Worst case would be to pay cash. Then you could refinance the house and pull the cash out to reinvest. But, give your bank a chance. If you have 300K in a CD with them you should be able to talk to someone at the top and have them work it out for you.

Please let me know how you make out.



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