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Profile picture for Batman231

Can someone help with a FHA loan question?

 I borrowed from my 401k to put towards our downpayment. Our lender wont give us a full loan approval until we have proof of funds. I will also need to get a gift from family to satisfy the proof of funds. Plus, we extended our Mortgage approval date to the seller to 2 days before we close. Is this normal?
  • June 27 2009 - Lake View
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Answers (7)

batman. This is a tricky question without knowing all the facts of your loan. What is the purchase price? How much are you taking out of that 401k? Are any of your closing costs being given by the seller??

Give me a call if you like and I can try and shoot you some free advice. Good luck and congrats!

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  • July 08 2009
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Profile picture for Justin Kennedy
double check with your 401k servcier and IRS, you may not be taxed if you can show hardship IE) 1st time buyer. if i am not mistaken the goverment wavied the tax penality for 401k withdrawals. something to consider when speaking with your tax professional. for your giftor, gifts of sub 11,000 dollar are not taxable.

i always have funds wired to escrow, less paperwork for all involved. in addition the gift funds stay in the donor acct untill needed. same with 401k funds.   
  • June 29 2009
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Hi Batman231,

I'm going to attempt to answer this question a little generically because I don't have your full paperwork to look at.

FHA loans do allow you to draw from your 401k either as a withdrawal or as a loan.  I am sure you are aware of the consequences of the withdrawal so I won't go into that.

What you will need to show to prove those funds are:
 -  A copy of your 401k statement
 -  Something in writing to show the terms on which your 401k can be withdrawn - you can get this from the 401k company or your HR department.
 - A copy of the 401k withdrawal amount check and your bank statement to show it has been deposited.

You can also get a gift from immediate family.  To prove this, your Lender should have given you a gift letter in the approved FHA loan format.  All parties need to fill out and sign this letter.

Now comes the tricky part:

 - The donor has to show where the funds came from.  This usually means they have to give you a copy of their bank statement and fill the bank account information on the gift letter (or if the Lender allows it, fill out their bank account information on the gift letter and not provide a statement).

 - You need to provide a copy of the gift check to you Lender to show you received it.

 - You need to deposit the check in your account and provide a statement to your Lender to prove that it has been deposited.

Please be careful to deposit all funds in the account you provided to the underwriter.  Sometime, a Client forgets that and puts the funds in a different account, then that new account would have to be verified all over with 2 months of statements etc

So, I hope I have helped you a little further to understand your situation.  Please be careful to keep your Loan Officer completely aware of any plans you make, especially concerning deposits into your bank account, because every deposit will be reviewed and you may get more conditions if the Lender has questions about them.

Good luck to you.  I hope it all works out well for you.
  • June 29 2009
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Profile picture for wetdawgs
Please be aware that in addition to tax on the 401k withdrawal that you don't intend to repay, you will pay a penalty (10%) for early withdrawal if you are less than 59.5 years old.

  • June 27 2009
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Profile picture for real estate mike
Everything sounds normal but you still want to be careful with the $600 that is part of your proof of funds. Your lender will know this since they all have different idiocracies, seasoning even on that small amount might matter to them?  
  • June 27 2009
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Profile picture for Batman231
Negative. The gift is only  $600. and it is only to show for the proof of funds. We dont need it as a part of our down payment. The 401k was a withdrawal and not a loan and hence i wont have to pay it back. Yes, i will get taxed on it, but we are getting 8k from the Feds. I guess my concern is that can we have a gift and withdraw from my 401k?
  • June 27 2009
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Profile picture for real estate mike
Is the gift from family already in your account? Some lenders require a "seasoning" of large sums of money and don't like it to just appear in your account; like gift funds from family. Basically they want you to prove you're financially stable, which Is up for debate. You will want to pay back your retirement fund monies which adds to your monthly income strain and if your only savings is into retirement funds you'll want to rethink that approach. Most financial advisors(if not all) will advise to have 3-6 months income saved in liquid assets and 401k's don't count. Hopefully you're paying below market value for the property and maybe you didn't max out what the lender said you could go for. Good luck and get that gift money in your name a.s.a.p.  
  • June 27 2009
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