I was looking to purchase a rental property using a 401(k) loan for the down payment and then I was curious if I could immediately refinance the mortgage to pay my 401(k) loan right back? I also have access to a $50,000 personal line of credit so I was interested in some creative ways to purchase additional properties. The assumption would be that these properties would cash flow the mortgages. I'm a new member, so thanks for any advice!
I was looking to purchase a rental property using a 401(k) loan for the down payment and then I was curious if I could immediately refinance the mortgage to pay my 401(k) loan right back? I also have access to a $50,000 personal line of credit so I was interested in some creative ways to purchase additional properties. The assumption would be that these properties would cash flow the mortgages. I'm a new member, so thanks for any advice!
This is a great question. I've processed many delayed financing deals for my clients and have never thought about using a 401k to fund one.
I think it's possible because you're borrowing from your own funds. The refinance would have to pay that loan back first and then any additional proceeds would be pocketed. If you wait 6 months, then it doesn't matter as long as you qualify for a regular conventional cash out loan.
The great thing about 401K loans is you don't have to use the loan in your DTI calculations. Now in the Delayed Financing verbiage it says you do but I would argue this because it's myself that I'm paying back. Not a bank.
Again, great question and I'm pretty sure that you can use your 401k to fund a purchase and then do delayed financing to recoup the cash. It must pay back the loan first though.
Thanks for the reply! Were you saying that a person has to wait 6 months before trying to refinance? I was thinking that maybe this would be like a hard money loan, where you try to refinance those in 45-60 days to reduce interest costs etc. Thanks for your input!
It is ok to use your 401k as a down payment from the financing side of things. Make sure to check the terms and conditions of your 401k. It could be used for reserves as well but you would need to show the Terms of Withdrawal. If you max out the terms for withdrawal than you wouldn’t be able to use the money for the reserve requirement.
Thanks for the reply. I'm glad to hear it ok to use the 401k for the financing side, any ideas on how to immediately refinance it to turn around and pay back the 401k loan in 60-90 Days? Thanks!