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If I contribute to a 401(k) at work, and thus have a lower W-2 income box 1 (Wages, tips, other compensation), will this hurt my debt-to-income (DTI) ratio on a mortgage application?

I wouldn't think so, but want to make sure before I start contributing since I also want to apply for a mortgage soon and want to make sure I will qualify.

Since a 401(k) deduction is voluntary, does it impact my income for DTI calculation for a mortgage?

WilliamKF
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Box 1 on your w2 is gross pay minus pre-tax deductions, like 401k (traditional 401ks, not Roth), so you are correct with that assumption. With that in mind, it was my experience that the bank only looked at gross pay from my previous two months of paychecks.

Double check with a loan officer, but mortgage applications only take gross income into account so a deduction won't affect your dti.

Also, mortgage apps usually assume that you can liquidate or borrow some large percentage of your 401k to add to your cash on hand for a down payment and closing costs. Something to keep in mind.

Brad P.
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No it doesn't. Also, 401k contributions do not affect gross pay.

Jared Newton
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