In almost all situations, a 401k cannot be used as proof of funds because it is not readily accessible and you will pay penalties for an early withdrawal.
Proof of Funds usually comes in the form of a bank, security or custody statement, and can be procured from your bank or financial institution that holds your money. Bank statements are the most common document to use as POF and can typically be found online or at a bank branch.
Is my 401(k) an asset? 401(k)s are nonphysical assets and your lender will likely take them into consideration when assessing your mortgage application. Be sure to consult with a financial advisor to make sure there won't be negative consequences if you use your 401(k) to buy a house.
Bottom Line. A 401(k) loan shouldn't affect your mortgage application—though if you're concerned about it you can ask your lender whether it will be included in your DTI calculation.
If your money is in a savings account or investment account, a signed letter from the bank will usually be enough to qualify as POF. However, if your money is in an account that takes some time to draw funds from like a 401(k) or IRA, you will have to move the funds to a more accessible account in advance.
If proof of funds is presented as a letter, contact the author of the letter and ask them to verify the information they provided and ask any questions you may have. If proof of funds is presented via a bank statement, ask the buyer who you can contact at their bank to verify the statement is authentic.
Mortgage lenders do look at 401(k) loans during the mortgage application process. The mortgage lender uses the 401(k) loan to determine the value of your 401(k) assets and your current debt obligations.
FHA: You are allowed to use a 401K loan. You do not have to factor the payment in to your debt ratio.
Can You Use a 401(k) to Buy a House? The short answer is yes, since it is your money. While there are no restrictions against using the funds in your account for anything you want, withdrawing funds from a 401(k) before the age of 59 1/2 will incur a 10% early withdrawal penalty, as well as taxes.
Borrowers should also include assets held in retirement accounts (e.g. IRAs, 401k plans, and TSPs) on their mortgage applications. Most people hold liquid assets in these accounts, meaning they can quickly convert them to cash.
Retirement funds: Retirement accounts such as your 401(k), IRA, or TSP are considered assets.
Retirement accounts
The reason is simple: The lender is considering the value of those accounts in the case that you have to liquidate them to pay your bills. You would be subject to early withdrawal penalties, as well as potential fluctuations in value based on market conditions.
You may be able to submit bank statements in lieu of a proof of funds letter. Ask your lender. If bank statements are permitted, submit both your checking and savings account statements.
The right time to get a Proof of Funds is before making an offer on a home or property. Depending on the type of property purchase (personal or investment), and the institution that will be providing you with your letter, turn-around time can vary from one to four business days.
You can withdraw funds or borrow from your 401(k) to use as a down payment on a home. Choosing either route has major drawbacks, such as an early withdrawal penalty and losing out on tax advantages and investment growth.
You don't have to show proof of funds until you make an offer on a property. Some estate agents may ask to see it earlier. There's nothing wrong with doing this, but if you don't want to you don't have to. Showing evidence you have the funds in place means you are a serious buyer.
bank statements of your deposit amount (for mortgage buyers) bank statements of your cash amount (for cash buyers) further bank statements from past months/years to show how your money has built up over time. evidence of you selling a property (if using the funds to buy the new property)
Why do estate agents need bank statements? Estate agents ask for bank statements for proof of funds, because this is usually easiest for buyers to find and send over. However, they will equally accept a proof of funds letter from your bank. But this will take you time to procure.
To verify a check, you need to contact the bank that the money is coming from. Find the bank name on the front of the check. Search for the bank online and visit the bank's official site to get a phone number for customer service. Don't use the phone number printed on the check.
Since the 401(k) loan isn't technically a debt—you're withdrawing your own money, after all—it has no effect on your debt-to-income ratio or on your credit score, two big factors that influence lenders.
The mortgage lender will want to see complete documentation of the 401k loan including loan terms and the loan amount. The lender will also want proof the funds were transferred into one of your personal checking or savings accounts so that it's readily available when you are ready to close the mortgage loan.