how to leverage 401K fund to qualify for a loan?

[Pei Tang]

Currently have a primary residence, a vocation home/vocation rental and a rental property, and had a loan on each of these three properties. Would like to buy another rental property but debt/income ratio is too high and was told not qualify for another loan. Had a combined of approximate $140K equity in three properties, and had $70K in 401K. Also had $25k in saving account for downpayment. Wonder how to leverage the 401K balance to qualify for a loan to buy a $100K rental property. Will appreciate any suggestions you all can offer.

[Jon Holdman]

Depending on your plan specifics you may be able to borrow up to 50% of your 401k balance or $50K, whichever is less. Not all plans allow loans, but most do.

You absolutely cannot pledge the 401k funds to secure a loan. That's a prohibited transaction.

A 401k can be used as part of your cash reserves when qualifying for the loan. The amount will be discounted to account for taxes and penalties you would have to pay to actually get the money, though.