Now that spring is in the air and temperatures are warming up, many of us are turning to activities such as gardening and “do-it-yourself” improvements to spruce up our yards and homes. Not surprisingly, these activities have grown into the development of a completely new living space for some of us. If you are needing extra funds to accomplish your lawn and home improvements, you may be considering taking out a loan to finance these projects. Last fall we offered you some basic information on the types and purposes of TSP loans. Today, we would like to take a deeper dive into taking a residential loan from your TSP.
What It Is
A residential loan, as the term implies, is a loan to build a new primary residence. This type of loan may only be used when purchasing or constructing a new primary residence for yourself. As long as it will be your primary residence once purchased or constructed, there aren’t many rules as to what your new home can be. Options range from a traditional house or condo to more adventurous choices such as a boat or RV. In order to be approved for a residential loan, you must be a current federal employee receiving a paycheck; have the amount you wish to borrow available, and have not repaid the same type of loan within the last sixty days. Please note that agency contributions and earnings cannot be borrowed. To obtain more knowledge on both residential and general purpose loans, please watch our video below.
What They Entail
Before you decide to take the plunge and request a residential loan from your TSP, be sure to note that there will be fees, interest, and possibly a mountain of documentation required to get the ball rolling. TSP charges a fee of $50 on each loan taken to cover administrative expenses, and you will be charged interest at whatever the G Fund rate is on the day that your request for a loan is processed. If you are married, your husband or wife will also need to be informed of the loan due to spousal rights under law. If you are a FERS employee, your spouse must consent by signing the loan agreement; if you are a CSRS employee, your spouse will be notified at the time you apply. Also, you will need to provide documentation showing the price that you or your spouse bought or constructed the new home and the address of the primary residence. For more information on what documentation may be asked of you, please visit the TSP Website.
What They Are Not
Now that we have covered what the residential loan can be used for and some of the hoops you may have to jump through to obtain one, let’s take a moment and discuss what the residential loan is not. First, the residential loan is not an option to refinance your current primary residence. It can also not be used to remodel, add on to, or otherwise renovate your current residence. Third, you cannot use this type of loan to purchase land only. Finally, if you co-own your current residence, you are not able to use a residential loan to buy out the other person’s share of the property.