All Forum Posts by: Joel DeLuca

"Loans Secured by Financial Assets
When a borrower uses his or her financial assets—life insurance policies, 401(k) accounts, individual retirement accounts, certificates of deposit, stocks, bonds, etc.—as security for a loan, the borrower has a contingent liability.The lender is not required to include this contingent liability as part of the borrower's recurring monthly debt obligations provided the lender obtains a copy of the applicable loan instrument
that shows the borrower's financial asset as collateral for the loan. If the borrower intends to use the same asset to satisfy financial reserve requirements, the lender must reduce the value of the
asset (the account balance, in most cases) by the proceeds from the secured loan and any related fees to determine whether the borrower has sufficient reserves."

"Loans that are secured against a liquid asset owned by the borrower (such as a 401(k) or mutual fund) do not have to be entered as liabilities in Section VI Liabilities if the appropriate documentation is provided"

Thank you Bryan, you concisely raised several things that i wanted to explore here on BP [This was my first post ;-)]

I would expect to find a SFH with equity capture, but I wasn't expecting to replenish the down payment through additional borrowing. For example:

purchase price: 100k
DP: 20K (entirely from 401k loan)
Loan Amt: 80K
401k loan: 30K
contingency REI acct: 10K (balance left after DP)
rental income: $1,100
P&I: $360
401k repayment $546

= nil to slightly negative cash flow during the repayment of the 401k loan (I assume I can repay this much sooner than the term since essentially rental income would be it down.)

Is it possible to "season" the 401k loan funds so that disclosure is avoided. I have no intention to deceive or be unethical in any way, It just seems like it might avoid a potential loan rejection. I had hoped that I would be able to use an FNMA conforming loan, but I don't know if they would ask about the source of the funds if they are seasoned (my understanding is two months).

Thanks again for your feedback!!!

I have a 401k with a previous employer that will allow me to take a loan against. The company is a large multinational that is unlikely to change plans suddenly or be bought out.

I would be looking for conventional financing. I would not expect the property to cash flow during the payback period of the 401k loan, (guessing 3 years of a 5 year loan). I would take out excess funds so that I would have an contingency fund of sort for short-term vacancy and maintanence.

Has anyone here used 401k loans to get seed money to get started in invested in SF? Any advice or cautions?