Private mortgage lent from your Solo 401k

Member since 2018 · 9 posts · 4 votes

Doing a private mortgage out of my solo401k for someone's new purchase of their primary residence. Can I do the mortgage amount higher than the purchase price in order to escrow money for home improvements on the property? So purchase price $375k, mortgage for $425k to leave $50k for property improvements?

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Clay SmithBusiness Member
Investor · Louisville, KY · Member since 2013 · 419 posts · 244 votes
3y
Yes
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Dmitriy Fomichenko
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
3y
@Richard Howell,
Generally lending to someone on a primary residence is a bad idea, this minimizes the protection for the lender (your Solo 401k plan). Making a loan amount higher than the purchase price makes it even worse. Do you know the borrower? Are you related? What are the terms of the loan? Why would you want to structure the loan this way and put your 401k investment in jeopardy? As the trustee of your 401k plan you have a fiduciary responsibility to make decisions that would protect the 401k and it seems that you are not exercising this responsibility... I guess there might be something more to the story...
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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3y
@Richard Howell
When lending on a primary residence make sure you follow all the CFPB laws such as using a licensed loan servicer, sending compliant monthly statements, collecting escrow and doing escrow analysis as well as sending 1099’s at end of year
Lending more than a property is worth you can do but I would advise against it as you are putting your retirment funds at risk
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