Loan Question

Participant - Husband is requesting a primary residence loan of $25,000.  Participant submitted paperwork showing the actual costs incident to the acquisition of a principal residence is $65,000.  The paperwork shows both the husband and wife on the purchase agreement.  Primary residence loans permitted in the plan and the loan is in the process of being approved.  Another loan request recently came in from another Participant in the Plan - the Wife for $50,000 with same purchase agreement submitted.  Individually, these amounts would be approved.  However, when added together, there is an extra $10,000 that would not be used for the actual costs of the principal residence.  I understand there are tracing rules on these residential loans.  Is there an issue on approving both loans in this case? I would think so, but if so, how do you avoid this issue from occurring in there were multiple unrelated plans?  Does self-certification help?

Thank you!

Nice question, but I don't have a problem with there being two different answers depending on the circumstances.  In the case where the loan is for a house being purchased by TWO participants in the same plan, the PA clearly knows the maximum amount available for the two of them and, if the first loan is made for $25k, then there is only $40k left to meet the need. No different than a request for $50k when the mortgage documents themselves show only a $40k amount needed.

When there are two different plans not related, each PA makes the decision based on the facts they have and it's quite conceivable that the sum of the payments exceed the amount required.

And, if personally audited, the participant has to explain compliance with 72. In the absence of success, the participant has taxes to pay.  Big time.