If you need to bring in additional fund to cover the amount short to close at closing, all lenders want you to proof where the fund will be coming from. All banks prefer you to show the “liquidated assets” (meaning cash) including checking, saving, CD or stock accounts. However, if borrowers show us their 401K or retirement statements, banks want to know the terms of withdrawal and proof of liquidation. For FHA financing, banks do not need proof of liquidation or withdrawal, but they still want to know terms of withdrawal. Not all 401K allowed borrowers to withdraw before their retirement age. Some do allow it with restriction. If banks ask you for this information, you can usually find these restrictions and requirements on their company’s websites or at the very end of your monthly/quarterly statements.
If you don’t plan on withdrawing from your 401K for fund to close, I strongly advice you to only use it as a compensating factor for your home loan. Otherwise, this statement can sometimes create a hold up on your application – when you don’t even plan on using it.