Can a 401K statement be used as proof of funds?

Question

When buying from the bank, some banks ask for proof of funds. I'm wondering if a statement from a 401K showing enough funds would suffice. Anyone ever try it?

Anthony Gayden · Answer

I can only speak from my experience. I used my TSP (401K equivalent) as a proof of funds based on the fact that I could take a loan from it. The banks had no problem with that.

Jason Staine · Answer

I did just that and then amended that the funds were from a hard money lender. Regardless of being self directed of not the bank did not have any concerns about my penalties for touching 401k money. Self directing your money is the correct way to do it.

Albert Lopez · Answer

Yes it is done all the time with lenders. They will ask you for your most recent 401k statement and the terms of withdrawal to ensure the funds can be made liquid within an acceptable time frame. The lender just wants to make sure they have a viable deal to work with.

Michael Knaus · Answer

Thanks for the insight!

Mark F. · Answer

"A better use of your 401K funds would be for showing reserves.  The same concept is applied (verified vested balance and withdrawal/loan amounts avialable up to $50K) but without having to actually withdraw these funds and paying the taxes and penalties."

@Cara Lonsdale @Michael Knaus

I agree with Cara. If you're financing with a traditional bank loan, the lender will usually want you to have 6 months of PITI reserves for each financed investment property you own. A 401K is a great way to document those reserves. If you have other resources that won't result in a withdrawal penalty or taxes, use those for your proof of funds and to close the deal.

Cara Lonsdale · Answer

Yes.  I have had clients do this.

Assuming you are NOT to retirement age yet, the 401K can be used as POF, HOWEVER, you need to make sure you statement shows your vested balance, and available funds for withdrawal and/or loan amount that covers the purchase price you are looking to have these funds cover.  Be prepared to provide the lender/bank your company's policy documents regarding limits to withdrawal amounts and/or loans.  Many companies limit to 50% of the vested balance UP TO $50K for withdrawals.  So, unless the property is under $50K, you may need to provide a source of additional funds.

Also, be prepared to pay taxes and a 10% penalty if using these funds prior to your eligible retirement term.

A better use of your 401K funds would be for showing reserves.  The same concept is applied (verified vested balance and withdrawal/loan amounts avialable up to $50K) but without having to actually withdraw these funds and paying the taxes and penalties.

Michael Knaus · Answer

Here's the point I'm after anyway. I plan to make several low ball offers to REO's with the hopes of landing 1 or 2. I do use private money but the funds aren't deposited until I need them (at closing). I also don't want to bother each private investor for letters considering this is a shot in the dark approach (numbers game). I use several investors and never know exactly who, what or where until I get it under contract. I plan to use my 401K purely as proof of funds to throw these offers around. I have no intention of actually using it unless for some reason I couldn't get the investor. BTW it is not self directed.

Brian Eastman · Answer

@Michael Knaus

That would only work if: A) the 401k was self-directed and was going to be the purchaser of property or B) you were planning on taking a taxable distribution of the 401(k) to yourself and then purchasing the property personally.  Otherwise the 401(k) is not capital available for the transaction and therefore not "proof of funds" for the transaction.

Can a 401K statement be used as proof of funds?

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