401(k) home loan rules - Movement Mortgage Blog

401(k) – four characters that can confuse a lot of individuals. Especially those not too seasoned in their professional career. If you’re also someone who is interested in homeownership, knowing how 401(k) can play into that process could be a game-changer. Buckle up for this ABCs of Mortgage on 401(k) home loan rules. 


401(k) for mortgage

Why does your 401(k) matter when you’re applying for a home loan? Fortunately enough, You can use 401(k) money to help pay for your down payment! There are a few catches, however, that could end up hurting you in the long run. For example, if you leave the company where you have your 401(k), you’ll have to pay that money back. In 60 days, too, or you’ll have to face a tax penalty. So make sure you do your homework before taking money out of that retirement savings.


Does 401(k) affect mortgage approval?

Having a 401(k) set up as an obligation you pay money into can leave you wondering – just by having one, does 401(k) affect mortgage approval? According to MyMortgageInsider, this does not impact your potential home loan approval with lenders. If you have concerns about a possibly high DTI, this is one factor that you shouldn’t be concerned with. 


401(k) home loan rules

401(k) home loan rules

Something you may have heard about is the possibility of utilizing your 401(k) to assist in your home financing process. If so, what are the 401(k) home loan rules behind this, right? As previously mentioned, just having a 401(k) does not impact your approval. Nor does taking out a 401(k) loan, if need be. Investopedia actually recommends that if you go about it correctly and pay it back quickly, it is not a bad idea to do so. It is seen as a viable source to pull funds from, as it is an account that you are pouring money into yourself. But the biggest thing to beware is making sure you do not plan to leave your job soon – as leaving while having a 401(k) loan active will have lots of negative implications.  


Using 401(k) for down payment, first-time home buyer?

Not only does having one and taking a loan from it not negatively impact you, you can actually use a 401(k) loan toward a down payment! So if you are starting to navigate the options of looking into a home, and stressing the initial costs, there’s an option. If you have a 401(k) built up, you can use those funds to help toward your down payment. And utilizing it this way also has no negative implications toward your possible approval. Just make sure you’re still keeping in mind that you’ll need to stay at your job during this time. Unless you just want to make it harder on yourself. 🤷🏽‍♂️ 


401(k) home loan rules

Duly noted. What now?

If you’re still curious about the effects of a 401(k), or utilizing funds from it, on a mortgage application, talk to a local loan officer. They’ll be able to not only look into your full financial picture, but also walk you through the whole home financing process. A trusted mortgage professional will be your best friend, right about now. 💪


There’s enough to stress about when it comes to your finances. And with applying for a mortgage. Know that worrying about your 401(k) with your mortgage application doesn’t have to be one of them. Feel equipped to proceed with your newly learned knowledge of 401(k) home loan rules, and know you have support.

Talk to a local loan officer.



About the Author:

Adam O'Daniel

Adam O'Daniel is Movement's Communications Director. He leads corporate communication and public relations efforts across the organization. Email him at adam.odaniel@movement.com.