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MrsBurgos09
LIF Adult
Member since 9/09 915 total posts
Name:
Erica
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Has anyone taken out money from their 401K or such for new home down payments
Just wondering if anyone has taken out money from their 401k or other similar accounts for a new home down payments?
We have our down payment but we were wondering if it would be a bad thing if we took out from these accounts and added to what we have. We obviously would put back the money we take out...
Thanks!
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Posted 8/24/16 2:48 PM  |
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Prudential Douglas Elliman Real Estate
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NYCGirl80
I love my kiddies!
Member since 5/11 10413 total posts
Name:
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Re: Has anyone taken out money from their 401K or such for new home down payments
It's not really ideal to borrow against your 401k for any purchase. Are you thinking of doing it just to increase your downpayment? Because then it's not really necessary. You can just make additional payments against your loan and pay it off sooner. Are you thinking of doing it to buy a more expensive home? Because then you may be spending beyond your means and may not be able to pay for your mortgage each month. And remember, mortgage payments usually go up every year as your taxes go up.
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| Posted 8/24/16 3:55 PM |
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LSP2005
Bunny kisses are so cute!
Member since 5/05 19458 total posts
Name:
L
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Re: Has anyone taken out money from their 401K or such for new home down payments
Don't do it. There are many home programs out there with 3.5% or 5% needed as a downpayment. I have to be honest with you, if you can't save up for a downpayment you really can't afford to buy a home. It is not going to be an if, but a when will you have an emergency. Work to save up a downpayment and an emergency fund. See if you can live with family for a year to really save up.
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| Posted 8/24/16 5:00 PM |
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chilltocam
LIF Adult
Member since 11/11 9141 total posts
Name:
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Has anyone taken out money from their 401K or such for new home down payments
For a home purchase, you can take a loan against your 401K, so then there are no penalties etc. You make monthly installment payments back to the 401k. It is generally not recommended, but it is better than just taking money out, which will be taxed and penalized
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| Posted 8/24/16 5:13 PM |
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MrsBurgos09
LIF Adult
Member since 9/09 915 total posts
Name:
Erica
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Re: Has anyone taken out money from their 401K or such for new home down payments
Posted by chilltocam
For a home purchase, you can take a loan against your 401K, so then there are no penalties etc. You make monthly installment payments back to the 401k. It is generally not recommended, but it is better than just taking money out, which will be taxed and penalized
Yes this is what I guess we were curious on. We do have our downpayment funds and we are lookin at homes that are based on single income $'s although we are a two income household... To previous posters point about about purchasing something we can't afford. We are trying to be very strategic with this next step and not be house poor ya know...
We were just curious as we had never heard of this before- we assumed the std was to just save up your money for a down payment. So just good info... I think we are good with what we have saved and are adding any little extra we can.
Thanks!
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| Posted 8/24/16 9:35 PM |
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Momma2015
Mommax2
Member since 12/12 6656 total posts
Name:
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Re: Has anyone taken out money from their 401K or such for new home down payments
Posted by MrsBurgos09
Posted by chilltocam
For a home purchase, you can take a loan against your 401K, so then there are no penalties etc. You make monthly installment payments back to the 401k. It is generally not recommended, but it is better than just taking money out, which will be taxed and penalized
Yes this is what I guess we were curious on. We do have our downpayment funds and we are lookin at homes that are based on single income $'s although we are a two income household... To previous posters point about about purchasing something we can't afford. We are trying to be very strategic with this next step and not be house poor ya know...
We were just curious as we had never heard of this before- we assumed the std was to just save up your money for a down payment. So just good info... I think we are good with what we have saved and are adding any little extra we can.
Thanks!
We did this. Not for our down payment but money to work on the house once it was purchased. There was no issue with our mortgage broker- they include your 401k balance in your assets anyway. There's no penalty for taking it out, no tax, no interest since I'm borrowing against myself. We're paying it back now- payments automatically are deducted from my paycheck each month.
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| Posted 8/25/16 9:16 AM |
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PitterPatter11
Baby Boy is Here!
Member since 5/11 7619 total posts
Name:
Momma <3
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Has anyone taken out money from their 401K or such for new home down payments
I do not think this is ever a wise decision.
My friend took out a loan against her 401k and regrets it.
Message edited 8/25/2016 1:32:34 PM.
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| Posted 8/25/16 1:30 PM |
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MrsBurgos09
LIF Adult
Member since 9/09 915 total posts
Name:
Erica
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Re: Has anyone taken out money from their 401K or such for new home down payments
Posted by PitterPatter11
I do not think this is ever a wise decision.
My friend took out a loan against her 401k and regrets it.
did she say why? just curious. Thnks!
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| Posted 8/25/16 3:50 PM |
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jellybean78
:)
Member since 8/06 13103 total posts
Name:
Mommy
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Re: Has anyone taken out money from their 401K or such for new home down payments
Posted by chilltocam
For a home purchase, you can take a loan against your 401K, so then there are no penalties etc. You make monthly installment payments back to the 401k. It is generally not recommended, but it is better than just taking money out, which will be taxed and penalized
This is what we did and no regrets. I'm paying it back and should be done in under 3 years. I know that some employers make you pay it in full if you are fired or laid off or take the hit as a withdrawal. My employer allows you to keep making installment payments even if you leave the company.
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| Posted 8/25/16 5:22 PM |
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jellybean78
:)
Member since 8/06 13103 total posts
Name:
Mommy
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Re: Has anyone taken out money from their 401K or such for new home down payments
Posted by LSP2005
Don't do it. There are many home programs out there with 3.5% or 5% needed as a downpayment. I have to be honest with you, if you can't save up for a downpayment you really can't afford to buy a home. It is not going to be an if, but a when will you have an emergency. Work to save up a downpayment and an emergency fund. See if you can live with family for a year to really save up.
Sorry but this is BS. Not everyone has the option to live with family or wants to do that especially if you have kids or pets. Bottom line is LI and the NYC metro area are $$$. Most homes run average $400-$450K. Just a 10% down payment is $40K plus another $15K or so for closing..not even including money to be held in the bank for renos and emergencies. If you don't get help from family for a down payment it can be very hard to save for a DP, closing costs and the cost of doing renovations or updating because let's face it most houses being sold on LI need updates.
OP I know plenty of people including myself who have taken out 401K loans to purchase a home and none of us have regrets at all. My only advice is to take a loan term as short as possible. We had the option of doing a 10 year repayment because we were buying a home but I chose the 5 year. It's more out of my check but it will paid off sooner.
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| Posted 8/25/16 5:29 PM |
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Re: Has anyone taken out money from their 401K or such for new home down payments
Posted by LSP2005
Don't do it. There are many home programs out there with 3.5% or 5% needed as a downpayment. I have to be honest with you, if you can't save up for a downpayment you really can't afford to buy a home. It is not going to be an if, but a when will you have an emergency. Work to save up a downpayment and an emergency fund. See if you can live with family for a year to really save up.
I agree w this completely. If you have to raid the 401K, you can't afford the house- sorry. My friends who made less than 100K combined realized this and they decided to buy a condo/co-op for less than $300K with PMI and after 5-10 years they built enough equity to trade up to a $400-450k house. When DH bought his starter house he saved up $80K over 7 years for the down payment.
The reason you should not touch a 401K is obvious - such as dealing w the repayment terms but the fact that you lose that money which is really meant for retirement. Compounded interest goes a long way. Suze Orman gives good advice on how to budget for a large house purchase. Yes it's nice to have family help but there are many people who are able to save for large down payments just by scrimping and saving the old fashioned way.
Message edited 8/25/2016 6:07:32 PM.
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| Posted 8/25/16 6:02 PM |
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BabyBoy
is Skylar Elizabeth
Member since 5/05 4189 total posts
Name:
Tom
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Re: Has anyone taken out money from their 401K or such for new home down payments
Posted by EclecticEsq10810
Posted by LSP2005
Don't do it. There are many home programs out there with 3.5% or 5% needed as a downpayment. I have to be honest with you, if you can't save up for a downpayment you really can't afford to buy a home. It is not going to be an if, but a when will you have an emergency. Work to save up a downpayment and an emergency fund. See if you can live with family for a year to really save up.
I agree w this completely. If you have to raid the 401K, you can't afford the house- sorry. My friends who made less than 100K combined realized this and they decided to buy a condo/co-op for less than $300K with PMI and after 5-10 years they built enough equity to trade up to a $400-450k house. When DH bought his starter house he saved up $80K over 7 years for the down payment.
The reason you should not touch a 401K is obvious - such as dealing w the repayment terms but the fact that you lose that money which is really meant for retirement. Compounded interest goes a long way. Suze Orman gives good advice on how to budget for a large house purchase. Yes it's nice to have family help but there are many people who are able to save for large down payments just by scrimping and saving the old fashioned way.
I call BS because not everyone as stated above will be in this situation especially on LI. Both DW and I both took out money from 401K. To begin, we didn't have a whole lot in our 401K and as a result of the house we purchased (short sale), my house is my biggest asset at the moment. Thank you 401K guy for recommending this. Ideally, yes, you don't want to touch this but not everybody has that. If the people that say that you shouldn't own a house because we couldn't save, that is more BS because we are doing just fine and over time, we have increase our 401K contributions and paid it back. You only have a 5 year max to pay it back otherwise you will get penalized i believe. Sometimes the path is not always straight in life.
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| Posted 8/25/16 10:24 PM |
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MrsPenthouse
LIF Adult
Member since 11/10 924 total posts
Name:
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Has anyone taken out money from their 401K or such for new home down payments
We did and it made the most sense for us. We took out a home purchase loan, the interest rate was lower than a renovation loan from our bank and we used the proceeds to renovate the home we had just purchased and avoid tapping into our savings cushion.
We had $$$ for our downpayment and closing costs and decided this was the best course of action for us. I couldn't be happier with our choice and we are fiscally in a great position- home has appreciated significantly in 3 years and we have since increased our 401K contributions and COULD repay the loan but our $$$ is making a better return in the market as compared to the interest rate on the loan and is actually outperforming my 401K so we'll keep it as is for now.
There is no "one size fits all" answer. Be responsible and do what is best for you guys!
Message edited 8/26/2016 9:37:16 AM.
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| Posted 8/26/16 9:36 AM |
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JandJ1224
Member since 6/06 5911 total posts
Name:
Jannette
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Re: Has anyone taken out money from their 401K or such for new home down payments
The concern is the pay back clause if you lose your job. So I would consider what that is, and how secure your job is when making a decision if it makes sense for you.
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| Posted 8/26/16 9:41 AM |
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MrsBurgos09
LIF Adult
Member since 9/09 915 total posts
Name:
Erica
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Has anyone taken out money from their 401K or such for new home down payments
Thank you so much everyone!! Great feedback!!
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| Posted 8/26/16 11:52 AM |
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MST9106
My life:)
Member since 6/06 9589 total posts
Name:
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Re: Has anyone taken out money from their 401K or such for new home down payments
There is nothing wrong with borrowing money from your 401K. Borrowing, not taking out. The loan interest rates are so low that it really makes sense in certain situations. I'd rather do that and increase my downpayment and not pay the insurance on the mortgage, which now stays with you during the life of your mortgage. You are not making as much in your 401K account but I think that at our age, its better to utilize that money for life investments and catch up when you're older.
Message edited 8/26/2016 2:45:08 PM.
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| Posted 8/26/16 12:26 PM |
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LMFitz
life is good
Member since 5/05 2013 total posts
Name:
L
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Re: Has anyone taken out money from their 401K or such for new home down payments
I borrowed money from my 401K for our downpayment 6 years ago - against the advice of everyone around me - and am thrilled with my decision.
Important to note that I changed jobs 3 years ago and had to pay back the entire outstanding balance (quite a $ nut!).....but still stand by our decision. The entire balance was paid back, with interest - so in a mere 6 years, we haven't skipped a beat in terms of the assets of the 401K account....and we're in our "forever" house.
Would do it again in a heartbeat.
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| Posted 8/26/16 1:26 PM |
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evrythng4areason
And then there were 4
Member since 1/10 5224 total posts
Name:
Kayla
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Re: Has anyone taken out money from their 401K or such for new home down payments
Posted by chilltocam
For a home purchase, you can take a loan against your 401K, so then there are no penalties etc. You make monthly installment payments back to the 401k. It is generally not recommended, but it is better than just taking money out, which will be taxed and penalized
We did this, more so to have liquid cash in case we needed it after closing, since we were using all of our savings for our dp/closing.
Despite everyone on this board basically telling us we were idiots, 4 years later were still very glad we did it. The time we bought our house was an optimal time, and saving up that additional money would have put us in a very different market not as much in our favor. Dh had always maxed out his 401k though, and we continue to do so.
Dh switched jobs since then, and we still just have the loan auto deducted.
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| Posted 8/26/16 2:26 PM |
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LuckyStar
LIF Adult
Member since 7/14 7274 total posts
Name:
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Has anyone taken out money from their 401K or such for new home down payments
I think in the OP's situation it doesn't make sense because she already has the dp.
But to say no one should ever do it is silly. Everyone's situation is different and I'm sure no one wants to borrow it- of course the ideal is to already have the money.
We didn't borrow anything. We lived in a cheap apartment and banked my paycheck for 2 years. We bought a house we could very easily afford while the market was still relatively low in a "great area." Because that's what you do, you buy way under the limit of what you afford. Anything else would be foolish, right?
We regret buying our house every day. I resent the fact that we scrimped and saved and are miserable. I wish we HAD taken money out of our 401ks. If we had a bigger dp we could have afforded a better area. I would have preferred that to being miserable. Of course now we put all our money into the house so we're stuck for a couple more years.
So everyone should do what they feel is best. Suze Orman would tell someone with a million dollars in the bank that they couldn't buy new underwear because they should really have 2 million. I'd never listen to that loon!
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| Posted 8/26/16 11:11 PM |
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FranM
And so it goes....
Member since 9/05 2217 total posts
Name:
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Re: Has anyone taken out money from their 401K or such for new home down payments
One word of caution about borrowing from your 401(k) for any reason - make sure you know what happens to your outstanding loan balance if you leave your job before paying back the entire loan.
Generally you will have a very limited time to pay the outstanding loan balance back to the plan, 30 - 60 days. If the balance is not paid it is treated as a distribution which will mean federal and state taxes and 10% federal penalty will be due in the year of the distribution.
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| Posted 8/27/16 6:04 PM |
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