hardship - proving need to buy a house?

[AlbanyConsultant]

My real issue is that with the availability of 100%+ loans (OK, maybe not as many as there were 6 months ago), how does a participant "prove" that they have no other way to finance the house? The participant may not want to take a 103% loan, but since it is available, does the Trustee have to acknowledge it somehow? Thx.

[Guest Sieve]

If safe harbor hardship provisions are being used for a 401(k) plan, an "immediate & heavy financial need" is deemed to exist if the $$ are for costs related to the purchase of the employees' principal residence (although that doesn't eliminate the administrator's need to verify the purchase, etc.). No other proof of financial need is necessary. But, if you aren't using the safe harbors in the plan, then that's anohter story--facts & circumstances. (Also, if all other available loans from the employers' plans are taken, and there is at least a 6-month suspension of 401(k) deferrals, then that is deemed to be a determination that the hardship distribution is necessary to satisfy the financial need.)

[masteff]

My real issue is that with the availability of 100%+ loans (OK, maybe not as many as there were 6 months ago), how does a participant "prove" that they have no other way to finance the house? The participant may not want to take a 103% loan, but since it is available, does the Trustee have to acknowledge it somehow? Thx.

You don't have to analyze it to that degree. Simply request a copy of the good faith estimate of closing costs. You'll want to look specifically at the line that says the buyer must bring X dollars to closing. You can allow for that amount plus gross up for taxes, but not more than is available per plan rules.