401k loan for mortgage down payment

[JuanWick]

Hello everyone,

I have a few questions, and hope some of you all may be able to help.

My wife and I are wanting to buy a house next year. My understanding is that we are eligible after 12 months of on time payments. Is it possible to use a 401k loan as a down payment or will the trustee see this as more debt, and not approve it?

Lastly, we were told the creditors have until October 29th to file claims. What is the likeliness of our payments changing?

Thanks everyone. I appreciate any insight you all can provide.

Regards,

JuanWick

[sophieanne]

Welcome to this site. How long have you been in your plan? Are you in a 100 % or less payback plan? If it is less than 100% it could be a problem because if you access the funds, the trustee could ask for the money to pay your creditors. If you’re in a 100% plan you would know if you can afford to pay the required loan payments. Either way you would have to ask the trustee for permission to buy a house, and although it can be done, it’s hard to get a mortgage while in bankruptcy. I know a lot of people will say you shouldn’t bother from your future for something today, but I believe everyone needs to make the choice they feel is best for them.

[justbroke]

Welcome to BKForum!

Yes, the rules for FHA allow you to purchase a home with 12-months of positive payment experience in an active Chapter 13 bankruptcy. Finding a lender that is willing to do this, because it requires manual underwriting, is difficult but not impossible. I would not expect my local bank (or credit union) to be of much help, but there are plenty of brokers that could get the loan funded.

Of course, you have to otherwise qualify for an FHA loan. Because of something known as overlays, the basic FHA qualification could have been overridden by the lender/bank. For example, FHA requires a (middle) FICO of 580 to qualify for 3.5% down. However some banks add an overlay that you need a (middle) FICO of 620 to obtain that down payment amount. Otherwise the down payment is 10%.

The other factors for FHA include the maximum amount you can borrow. For 99% of the "counties" in the country, the maximum amount is $331,760 for the total loan (not including any mortgage insurance added to the loan). Additionally, your down payment could squeeze out more for the base loan. (Example, with a downpayment of 3.5% the maximum total price could be as high as $343,500 because the downpayment reduces the total amount of the loan\).)

Use of your 401(k) should not be a problem as you'll need permission to purchase anyhow so you'll also ask, in your Motion/Request to Purchase/Incur Debt, to use money from your 401(k) for the downpayment.

Lastly, we were told the creditors have until October 29th to file claims. What is the likeliness of our payments changing?

This shouldn't affect you. This is for (mostly) the unsecured creditors to get something from the Chapter 13.

What happens is that your disposable monthly income (DMI) is divided up between the unsecured creditors based on their percentage of your overall debt. An example would be that Mary has only two credit cards, one from Bank of Debt for $20,000 and the other from CitiDebt for $10,000. The total unsecured debt would be $30,000. Since Bank of Debt is $20,000 then Bank of Debt would receive 2/3rds of any DMI. The corollary being that CitiDebt would receive 1/3rd of any DMI.

[JuanWick]

Very helpful thanks everyone. Yes it is 100% chapter 13.

I appreciate the detailed answers very much. Cheers!

[justbroke]

Since you are in a 100% plan I'll add something. If all of the creditors don't timely file an "allowed" claim by that date, you will only need to payback those that did file! It happens. In my case, I think it was Chase that didn't file on about $30k of credit card debt. They received nothing in the Chapter 13 and the debt was summarily discharged.

[sophieanne]

I too was in a 100 percent plan, and Chase left 20,000 off the table. It made me very happy.

[flashoflight]

It's not unusual for a number of creditors to not file. Sadly, it's also not unusual for a bunch of creditors to file on the very last day. Hopefully you will get lucky and get some that don't file.