Buying Near Lugoff? If a Lender Told You to Cash Out Your Retirement Account, Read This
If you are buying a home near Lugoff, and a lender has told you to cash out your retirement account for the down payment, this is for you. I am Jason Sharon, and I want to walk you through a fictional buyer named Beckett, because his situation is one that comes up often.
Meet Beckett
Beckett is an illustrative character, not a real client. He is buying a home near Lugoff, South Carolina, and he is considering a USDA loan. He has a retirement account he has built up over time. His lender tells him two things. First, cash out the retirement account to cover the down payment. Second, count the earnings on that account as part of his income.
It sounds official. The lender is confident, the paperwork is moving, and Beckett is tempted to just go along with it. That is exactly where buyers get into trouble: they assume a lender's habit is the same thing as the rule.
What the USDA guideline says
The answer sits in USDA guideline Paragraph 4.6. Here is the text exactly as written:
"Applicants will not be required to use retirement assets as a down payment, regardless of their retirement status. Income earned on a retirement account from interest, dividends, or capital gains when funds can only be accessed by retiring, terminating employment, loaning against the account, or withdrawing with penalties is never considered for annual or repayment income."
There are two separate ideas in there, and it helps to take them one at a time.
Part one: the down payment
The first sentence says applicants will not be required to use retirement assets as a down payment. It also says this holds regardless of their retirement status. In plain terms, the guideline does not make Beckett drain his retirement account to get into the home.
That does not mean a buyer can never choose to use retirement funds. It means the guideline does not require it. If a lender tells you it is required, that is a claim you are entitled to check.
Part two: the earnings
The second sentence is about income. It says income earned on a retirement account from interest, dividends, or capital gains is never considered for annual or repayment income, when the funds can only be accessed by retiring, terminating employment, loaning against the account, or withdrawing with penalties.
So if Beckett's account is the kind that can only be reached in those ways, the earnings are not part of the income picture. If a lender plans to count them, that needs an explanation tied to the guideline.
The exact words Beckett uses
This is the part you can use today. Beckett says to his lender:
"Paragraph 4.6 of the USDA guideline says applicants will not be required to use retirement assets as a down payment. Can you show me where my file requires it?"
Then he asks one more question: which line of the income calculation includes retirement account earnings? He cites Paragraph 4.6 again when he asks.
Notice what this does. Beckett is not arguing and he is not guessing. He is pointing to a paragraph number and asking the lender to point to the requirement in his file. A lender who is following the guideline can answer calmly. If the answer is a shrug, that tells Beckett something too.
What to do before you sign anything
Here is a short list for you, whether your name is Beckett or not.
- Write down exactly what your lender told you about your retirement account.
- Ask where the file requires it, using Paragraph 4.6 by number.
- Ask which line of the income calculation counts retirement account earnings.
- Do not liquidate anything until you have an answer you understand.
Every loan file is different, and a single paragraph is not a promise of approval. But knowing what the guideline actually requires puts you in a much stronger position than simply trusting the first answer you hear.
If you are in this spot
If you are near Lugoff and a lender has told you to cash out your retirement account, I would be glad to look at it with you. Call 843-LOW-RATE and I will find the path.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
Learn more about this loan program: Buying Near Lugoff? If a Lender Told You to Cash Out Your Retirement Account, Read This
