they dont need the retirement accounts (if you do not plan to use them for the down payment). That is not liquid money that they bank can use to improve your loan amount.
“Homebuyers should plan on showing sufficient reserves to cover six months' of mortgage payments,” says Bankrate Chief Financial Analyst Greg McBride. But “this doesn't necessarily have to all be sitting in a savings account. Fully vested retirement accounts or investments held in a brokerage account also qualify.”
When trying to determine whether you have the means to pay off the loan, the underwriter will review your employment, income, debt and assets. They'll look at your savings, checking, 401k and IRA accounts, tax returns and other records of income, as well as your debt-to-income ratio.
Savings documentation: While not as critical as credit or income, lenders also usually want to see your bank statements. Your application can also list assets such as cash (things like checking accounts, savings accounts and certificates of deposit) and investments (retirement accounts, stocks or bonds).
Since the 401(k) loan isn't technically a debt — you're withdrawing your own money, after all—it has no effect on either your debt-to-income ratio or your credit score, both of which are major factors that lenders consider.
When you receive income from your traditional 401(k), 403(b) or 457 salary reduction plans, you'll owe income tax on those amounts. This income, which is produced by the combination of your contributions, any employer contributions and earnings on the contributions, is taxed at your regular ordinary rate.
When you apply for a home loan with regular hourly or salary income, lenders use your gross income (before taxes and deductions) to determine whether you qualify. However, retirement or Social Security income is often non-taxable. Therefore, lenders can “gross up” your income by an additional 25%.
You may be able to take out a penalty-free loan from your 401(k) to buy a home, but you'll still owe taxes on the amount you withdraw. Withdrawals over the limit or that don't qualify for penalty-free withdrawal are still subject to a 10% penalty for borrowers under 59 ½.
Your 401(k), and any other retirement accounts, are financial assets. These are portfolios in which you hold securities and investment products with either realized or potential value. This makes your 401(k) portfolio an asset in your name as long as you own the account and as long as it has a positive balance.
Being retired, you may have income sources that the lender will consider such as social security, pension, retirement distributions, investment income, annuity, spousal benefits as well as your assets when deciding if your eligibility for a mortgage.
Did you know there are different types of property that should be accounted for in your estate plan? There is intangible property, such as retirement accounts, insurance policies, bank accounts, cash, and other financial holdings. There is real property, which includes any real estate holdings you may have.
Generally, lenders want to see that money has been in an established account anywhere from 60 to 90 days. If you keep the cash in your account for a few months, at least, before applying for a mortgage, that money becomes seasoned. Lenders will see the money has been there for a while and view it as legitimately yours.
To get a mortgage, your age won't be a factor, but your income will be. If you're concerned that you may be less attractive to a mortgage banker because you've hit retirement age, know that it is illegal to discriminate against anyone applying for a mortgage based on their age.
Bottom line. You can use the money you've invested in a retirement account, such as a 401(k) or IRA, to help purchase a home.
Mortgage lenders require you to provide them with recent statements from your account with readily available funds, such as a checking or savings account. In fact, they'll likely ask for documentation of any accounts that hold monetary assets.
Retirement Benefits are Marital Property
Likewise, pension plans are also considered marital property. A divorcing spouse who opened a retirement account prior to marriage may be able to claim his or her pre-marital contributions to the account as separate, non-marital property to prevent division with a former spouse.
Deferring Social Security payments, rolling over old 401(k)s, setting up IRAs to avoid the mandatory 20% federal income tax, and keeping your capital gains taxes low are among the best strategies for reducing taxes on your 401(k) withdrawal.
What is the first-time homebuyer exemption? The first-time homebuyer exemption allows first-time homebuyers to withdraw up to $10,000 from their 401(k) without incurring the 10% penalty if they're purchasing a home for the first time. However, you'll still be responsible for paying income taxes.
If you have any retirement accounts, stocks or mutual funds, these are considered equity assets. Be sure to include these on your home loan application.
Age doesn't matter. Counterintuitive as it may sound, your loan application for a mortgage to be repaid over 30 years looks the same to lenders whether you are 90 years old or 40.
Mortgage lenders often look at gross monthly income to determine how much mortgage you can afford, but it's also important to consider your net income, as well.
The $1,000 per month rule is designed to help you estimate the amount of savings required to generate a steady monthly income during retirement. According to this rule, for every $240,000 you save, you can withdraw $1,000 per month if you stick to a 5% annual withdrawal rate.
Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes. You may need to pay income tax, but you do not pay Social Security taxes.
As a general rule, if you withdraw funds before age 59 ½, you'll trigger an IRS tax penalty of 10%. The good news is that there's a way to take your distributions a few years early without incurring this penalty. This is known as the rule of 55.