401k loan for post-closing liquidity

If you can cover the monthlies and such why do it? Just to have more cash in your bank account (where it's not earning interest)? If you're using the loan to cover moving, renovation, new furniture etc. expenses then you're overextending yourself. $$ taken out of a 401k aren't earning interest/dividends/capital gains, and unless you['re putting the $$ to work earning more than you would in a 401k, you're reducing your future returns. If you have an emergency and really need the money, take it out then, not before.

Probably a bad idea, don't you have to pay a penalty for borrowing from your 401K? I believe there is some sort of fee or penalty, you can't just borrow from it that willy nilly.

I've harped on this before as people come up with all sorts of crazy ideas to save money for their purchase. Why don't you just do a broker commission rebate from your buyer's agent? 1% more equity in your pocket at close, that's 5% more downpayment if you use 80/20 leverage.

Keep in mind if it's a condo you'll still have to pay the dreaded mortgage recording tax: http://www.hauseit.com/closing-costs-nyc/

Good luck and let us know what you end up deciding to do!

Willy nilly, come on now!

It depends on your circumstances. If you otherwise have a really low DTI, it's not a bad idea. If you're hoping to buy a co-op, you'll need to show that liquidity. We're closing on Monday, and took a profit-sharing loan for the sake of liquidity (and renovations), but even with that, our DTI < 20%, and paying it back is easy. Good luck!

Sorry maybe I didn't elaborate enough in the original question. I can easily cover the monthlies, the issue is that most co-op boards want to see 12+ months of mortgage/maintenance in cash post closing. Monthlies will be <20% DTI but I don't have 12 months cash for post closing liquidity, only 3-4 months. The 401k loan would be used to show cash at closing (will be disclosed to board) and can be repaid later in the year once I have significantly liquidity. So yes, I would sit on the cash, but without it I couldn't get co-op approval. There is no tax penalty for taking out the loan (it's a loan, not a withdrawal).

depending on the board they may include your vested 401k as being 'liquid' bc you can easily borrow from it should the need arise.

It's a good idea to have at least 25-35% handy to cover everything - incl downpayment, post closing liquidity, closing costs etc.

With that said, since you're buying a co-op, I would highly suggest you looking into a broker commission rebate (http://www.hauseit.com/how-do-i-get-a-buyer-agent-rebate-in-nyc/) to help cover most if not all your closing costs. Don't know your particular situation but if it's under $1 million you already avoid the 1% Mansion Tax. There's no mortgage recording tax for co-op loans. So a rebate of say 1% of the purchase price could potentially more than cover your closing costs..that should help your situation.

Hoping to resurrect this thread, never satisfactorily answered. Like the original poster, I'm looking to (potentially) buy a coop . . . and have an immaculate credit rating, a steady job, a likely low '30's DTI ratio upon purchase, and cash + stocks for 20% mortgage plus 12+ months of payments (inc. HOA etc.) . . . but well short of 24 months. What I do also have, however, is a plump 401k, which I understand *most* boards won't consider liquid. It seems that a 401k loan will NOT appear on your credit report (!). Why should I not pull 50k out to pad my bank account to meet the 24-month cash requirement? I would then repay it (back into my 401k) promptly upon signing. Would it become an issue for the board? Would I need to advertise it? A bit of slight-of-hand, sure, but fact of the matter is that if push came to shove I really *could* fall back on my 401k to make payments.

Sorry Treb, I just found this.

Taking money from retirement to buy an apartment is a dicey proposition that should be discouraged in most cases. That said, I just did it (not to show liquidity in a co-op purchase but to finalize a condo purchase.) One thing that struck me was how uniformed the financial services people were about the rules and tax implications of such a transaction.

What I would suggest you do instead, if your broker is cool with it (and if you don't have a broker, feel free to reach out to me at upstairsrealty [at] gmail) ... back-channel to the board of your target apartment that you are *willing* to do that, but ask if they really *need* you to.

chances are, the board might say, "oh, that's a bridge too far, why don't you just put a couple months' of maintenance in escrow and call it a day."

Boards are *very* nervous about the ability of purchasers to meet their corporations' financial needs -- especially with the cost pressures of taxes, labor, insurance, climate change, energy regs, etc. -- but they're not actively trying to kill you.

ali r.
{upstairs realty}

Boards usually want more than 20% down.

I thought boards want a 28% DTI ratio.

I thought boards want a 28% DTI ratio.

Streetsmart, it really depends on the board -- some want to be tighter, around 25%, while some will let you go up to around 35% if they like the rest of your profile.

If trike (OP) did what he suggested back in 2016, what would this mean today?