Can a 401k Loan be used for an investment property downpayment?

[Steve S.]

You can borrow up to $50,000 or half of your 401k, whichever is less, and pay yourself back the interest over 5 years at the most.

Would these funds be allowed as part of the downpayment for a rental property?

[Albert Bui]

HI Steve,

Yes 401k can be used as a down payment because its considered to be from the "borrowers own funds."

The other reason you can use it is that this loan or 401k loan is considered to be "secured," funds since the funds are secured by your 401k and your job.

The main advantage with 401k loans is that the min monthly payment on this loan is not counted in your DTI or debt to income ratio this is the case with all funds borrowed from financial assets which include other financial assets like loans against:

- permanent life insurance policies like universal and whole or mutual whole life insurance policies (not term since term life does not have cash value)

- stock and bond portfolios

- CD's

- cash like instruments like money market

- cash value positions in options/shorts/etc

- retirement accounts like 401k, 403b, 457, defined benefit (DB or "pension," type plans) , and other defined contribution (DC) plans

Hope that helps.

@Tony Nguyen