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Are Retirement Account Loan Payments Debt For Mortgage?

Are the payments on a loan from your retirement account included in your debt-to-income ratio when you apply for a mortgage?

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

Some borrowers take out a loan from their retirement account to pay for part or all of their down payment when they buy a home.  In most cases, the monthly payments you make on a loan from a retirement account are not included as debt to calculate your debt-to-income ratio for a mortgage. The payments on a loan from a retirement account are not counted as debt when you apply for a mortgage because the assets that guarantee the loan are owned by you, the borrower, and because you make the loan payments to yourself.

Please note that you are required to provide the lender with documentation that outlines the key terms of the retirement account loan including the interest rate, loan length and monthly payment. You must also provide documentation that verifies that the loan proceeds were deposited into your bank account. Additionally, if you intend to use the retirement account to satisfy reserve requirements for the mortgage then the loan amount is subtracted from the value of the account.

We provide a detailed explanation of how to use funds from a retirement account to buy a home.

As an alternative to using a loan from your retirement account for your down payment, you may want to consider a low down payment mortgage program. We provide a comprehensive summary of low / no down payment mortgage programs on FREEandCLEAR as well as a helpful comparison of these programs.

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About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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