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So ironically I took out a 401k loan to avoid PMI on a property we purchased. I've recently left the job where I had the loan and want to repay the balance, but will need to borrow in order to do so.

If I take out a home equity loan that "reduces" the overall equity in my home below 20% could that cause my mortgage lender to add PMI to my mortgage? Or are my mortgage terms based on the fact that I had 20% equity when I purchased the house?

This may be a silly question but I honestly don't know the answer! Having a hard time finding it on google as well.

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    You typically can't get a home equity loan that brings your equity under 20%.
    – Hart CO
    May 1, 2020 at 21:02
  • The mortgage lender remains "primary" and they won't care (as much), because they'll get paid first in a liquidation. The HEL/secondary mortgage may insist on insurance.
    – Ben Voigt
    May 1, 2020 at 21:34
  • Do you have another job lined up, does it have a 401(k) plan, and does that plan allow rollover of assets+loan together from a previous employer?
    – Ben Voigt
    May 1, 2020 at 21:35
  • @CO That is interesting I did not know that! Since I’m right at the threshhold that may influence my ability to take out a home equity loan. Thank you for the info!
    – Shrout1
    May 2, 2020 at 19:17
  • @Ben Voight Hey I do have another job lined up but it is with a new company. I will not likely be able to get a 401k set up in the 60 day window as they are still getting their 401k options established. I’m only employee #3 so it will probably be a little later this year before we have a 401k established. Would definitely be a good option if it existed!
    – Shrout1
    May 2, 2020 at 19:20

1 Answer 1

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I am self answering as I've worked this all through.

  • Taking out a HELOC (Home Equity Line of Credit) on my property will not add PMI back to my mortgage
  • My local Credit Union is willing to provide a HELOC up to the full appraised value of the home
  • Due to current market demand this process is expected to take up to 6 weeks.
  • I have since taken out a personal loan to ensure that I can pay back the full balance of the 401k loan before it is counted as a distribution
    • It was crucial that I not pay the tax penalties and remove that much money from my retirement accounts.
  • I am in the process of selling another property and will use some of those proceeds to repay the personal loan.
  • If I choose not to repay the full amount of the personal loan with my sales proceeds then I will take out a HELOC to pay off the remainder of the personal loan
    • The personal loan has an exceedingly high interest rate, like 10% as it is unsecured

So that's it! It's very much possible, though it will depend upon an individual's situation and their credit score, income etc.

Additional notes based on comments to the question:

  • 401k loans cannot be rolled over except in very special circumstances, such as the company employing the individual being acquired.
  • My current employer offers a SIMPLE IRA so rolling over wouldn't be an option under any circumstance.
  • From talking to my accountant (who I probably should have called in the first place lol) he mentioned that COVID19 distributions must have occurred during the time that the market was impacted by the virus
    • I took out this 401k loan late last fall, so I would not be eligible for that exemption.
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    Thanks for coming back and posting an answer, it is quite detailed. Jun 10, 2020 at 18:34
  • @Grade'Eh'Bacon Absolutely! Hope it can help someone else as well :)
    – Shrout1
    Jun 10, 2020 at 20:09

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