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Does 401K Debt Count?

Does 401K Debt Count?

"I have outstanding loans against my 401K retirement plan.  Since I owe it to myself, does it count as debt service that is included in the total expense ratio, limiting the mortgage for which I can qualify?"

You do owe it to yourself.  On the other hand, if you leave or lose your job, you have to repay the loan immediately or be subject to taxes and an early withdrawal penalty.  Logically, underwriters ought to count such debt in part, but in practice they don't count it at all.

Copyright Jack Guttentag 2003

Jack Guttentag is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Visit the Mortgage Professor's web site for more answers to commonly asked questions.

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