K Erica Miller Posted June 11, 2021 Share Posted June 11, 2021 Hi, I have a participant that is requesting a residential loan but they will be building a home not purchasing a home. Can this be done with a 401k loan? and if they can, what documentation should we be requesting? A contract with the contractor that is building the home? I'm confident that the purchase of just the land parcel does not qualify for a loan and that is what they provided so far. Thanks for any insight on these rules Link to comment Share on other sites More sharing options...
BG5150 Posted June 11, 2021 Share Posted June 11, 2021 I'm not sure, but I would also get some sort of pledge that the home will be their primary residence if they want the loan to be more than 5 years. (And the plan's loan policy will have to allow for home loans, too.) QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left. Link to comment Share on other sites More sharing options...
K Erica Miller Posted June 11, 2021 Author Share Posted June 11, 2021 Documentation of Principal Residence Loan.pdf Luke Bailey 1 Link to comment Share on other sites More sharing options...
K Erica Miller Posted June 11, 2021 Author Share Posted June 11, 2021 Construction for Primary Residence Ruling.pdf Luke Bailey 1 Link to comment Share on other sites More sharing options...
Cardscrazy Posted June 14, 2021 Share Posted June 14, 2021 I don't know if reference to IRC 163 does anything because a participant loan is not allowed for a "substantial improvement" so why would IRC 163 support or not support a participant loan for a construction. The loan rules stand on their own I think. Therefore, with those rules being vague, the acquisition of and construction of a primary residence (both resulting in primary home acquisitions and mortgages) are rather similar with the end result being a dwelling to live in that they didn't have before so I'd believe you should be able to make an administrative interpretation and document it as such and allow the loan for the construction, as long as you confirm that they did ultimately live in the house. Link to comment Share on other sites More sharing options...
Luke Bailey Posted June 15, 2021 Share Posted June 15, 2021 If they actually build the house and live in it, they've "acquired" it within the plain meaning of the term. Luke Bailey Senior Counsel Clark Hill PLC 214-651-4572 (O) | LBailey@clarkhill.com 2600 Dallas Parkway Suite 600 Frisco, TX 75034 Link to comment Share on other sites More sharing options...
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