Can you use your 401(K) as reserves?

In short the answer is YES.

I assume most of you know what 401(K) is and the great tax benefits it provides. If you are new to 401(K) then google it and you will see a wealth of information about 401(K). This post is how to stretch your 401(K) money beyond savings.

Most financial experts recommend saving money worth at least 6 months of expenses as an emergency fund. They are very much true and I realized the necessity of it when I applied for my first mortgage. Generally mortgage lenders always look for 6 months reserve to cover the mortgage loan payments. When I bought my first home I had just enough to do minimum required down payment. Not even a penny more. My mortgage application was almost rejected because I didn't have enough reserves after I pay the down payment. My 401(K) contributions, which I started doing from my first job, came to my rescue. My mortgage lender considered my 401(K) funds (which were substantial) as reserves and I was able to get into my first home. 

 
Even though 401(K) plans are targeted towards retirement there are two additional reasons why you should participate in 401(K). First, 401(K) funds can be used as reserves when applying for mortgage loans. This means additional wait time to build the reserves before buying a home can be reduced drastically. Second, you can always take a loan (of course there are limits and rules) from your 401(K) funds when in need and the interest you pay to the loan goes to your account only so in essence you are paying interest to yourself. 

 
Most of us work for companies that offer 401(K) retirement plans. If the main objective of 401(K) plans did not excite you then I would recommend you to give a second thought considering above two reasons. If there is a company match you should always take full advantage of up to employer's matching contributions at least. 

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