should i withdraw money from my 401k for closong costs?

Question

i need to come up with $4500 for closing costs and my only resource is my 401k. is it wise to do this and just deal with the penalties and fees that come along with it?

i am 28 and this will/would be my first home. i dont plan on leaving my employer anytime soon but i know the unexpected sometimes happens. i have an emergency fund with about $2200 that will/would take care of any upgrades or improvements the home may need but being new to this, i didnt expect the closing costs 2 b so high. my realtor said the seller does not want anything 2 do with the closing costs so i basically have 2 come up with it.

i offered the seller exactly what she wanted and what it was appraised for but she still refuses to help me out w/closing costs!

Answer 1

Shame on your real estate agent for not taking better care of you and the lender too!

Leave the 401 alone.

Were you pre-approved for a mortgage before you wrote and signed a contract? If so you would have known what you needed up front via the Federally mandated Good Faith Estimate (GFE) that shows all estimated closing costs, down payment needed and the pre-paid cost. If you needed additional funds they could have built the closing costs into the sale/purchase agreementl. Since you now have the appraisal, it is after the fact. So here is a suggestions below.

Have the lender give a turn down letter because you have insuffucient funds to do the deal. They can issue the declination letter and then you may either negotiate the closing costs with the seller or maybe kill the deal, but certainly you'll be wiser. Go to the next deal with a new real estate BROKER not an affiliate or associate level licensee and a reputible lender who will advise you up front. You should also consult with an attorney to be sure of your legal rights and obligations in this deal.

All real estate sale agreements I know of have a mortgage contingency. If you can not remove the mortgage contingency by getting approved for the loan, then the deal likely dies without further liability.

Another possiblity is if you are a first timer, income is under set limits but otherwise can qualify for an FHA loan, there may be down payment assistance programs or closing cost assistance available to you that would allow you to move forward and close. I never like 100% financing but if you really like the home, the area, and the job is secure then there is nothing wrong with doing the deal, the price will catch up over time. If this is FHA loan and you own a car boat or some such you may borrow against that assett as long as it does not upset your ratio of debt to income. Again there may be a 100% loan available that would allow you to cover the closing and prepaid costs with the funds you now have. Your lender should also be looking at that option.

The lender may be able to assist with some closing costs as there is a spred on the loan lock date and the closing date that is worth a few hundred dollars that lenders typically do not tell you about because they pocket the "spred" themselves. It's your money, you need to demand it be applied to reduce your loan costs! I just got a reduction for my son form an on-line lender who did it to not loose the deal (he is in GA, I'm in TN, the lender is based in Michigan). Also demand the GFE and go over it in detail. You should not plead ignorance a 2nd time, it will fall on deaf ears.

Your real estate agent should have advised you on mortgages. I do what I call "mortgage 101" with everybody I assist in homebuying. We cover credit, loans, rates, adjustable vs fixed rate, etc. I have yet to do this with somebody who did not learn something they did not already know.

For your next real estate agent be sure they hold the GRI and CRS designations and if possible go for the grand slam, that being that they also hold the highest level of license the state offers (in TN that is simply "Broker"). That gets you a broker who has a ton of education, they can own and/or operate a real estate firm and have leaned more ways between now and Sunday to make a deal work legally and to your advantage.

I am happy to refer you to a high quality broker in your area if you want, just drop me a note stating so with how to contact you and what you want. I get p*ssed when I see deals like you described as I feel they are inexcusable in this day and age.

Answer 2

the first thought that came to my mind upon reading this post was 1. WHY is college tuition fee is America ridiculously expensive? WHY do colleges need so much money? A college is NOT a company like Apple or Microsoft. My sister will graduate from her 4 years of university soon and the total coast of tuition pee paid during those 4 years....is OMG too much. the amount is almost as much as the U.S. national debt. 2. do colleges REALLY need a lot of money? 3. America is currently facing an economic crisis; it is predicted to be one of the worst ever in U.S. history. So unemployment is a rising issue, the economy is getting spoiled and there are more innocent citizens suffering beneath the poverty line. And i am NOT against the government but the federal government doesn't seem to be sorting it out well. I don't know that much about the ecnonomy, so I learned from my sister (she's a business / economics major) and i can tell that the nation, the economy and so on are all facing a crisis. Soo....i don't know but unless the government promises to like help the poor pay for college or something I strongly suggest that colleges DO NOT raise tuition fees. Otherwise...America will face an even worse educational crisis. Does the stuff I typed make sense? hope it does. And......the good news is that the expensive tuition fee paid to a great college was actually worth it since my sister got a great job 2 weeks before graduation.

Answer 3

It's never a good option to take from your retirement.

Unfortunately, at times, that is the only choice.

If this is your first home, you can withdraw with no penalties and just pay the taxes. If you can do it as a loan, do that. When you withdraw, have them take the taxes out.

Call your 401k manager and find out what your options are. Ask a LOT of questions.

See if your bank will give you a low interest loan. If it's lower than the withdrawal on your 401k, then do that.

Answer 4

Many 401k Plans allow you to take a personal loand with no questions asked. Usually as long as it's below $10,000. Of course this depends on your particular plan.

Another option previously mentioned was to ask the seller to cover closing costs. That is definately a good alternative. Especially if your final price is close to the asking price.

Bottom line, talk to your realtor, and talk to your financial advisor.

Answer 5

bad idea,

tax, penalites and when you leave your employer the "loan" becomes due in full immediately.

Perhaps you should wait with buying a home until you can easier afford it?
Just because - once you have a home all kinds of extra cost will start coming in, you always will need an emergency fund just for that.
If you are short already now I would recommend to postpone. Prices are going down anyways.

Good luck!

Answer 6

How old are you? If you're a long way from retirement and this is your first house, then this may be the way to do it. You can always increase your 401k deductions to recoup the $4500. Also, owning your own home is a nice way to make your money work harder for you. I believe that 1st time homebuyers may be able to tap into 401k without any penalties. (check with your tax advisor)

Answer 7

I'm not sure but I think a certain amount for home purchases can be withdrawn without penalty. If so the tax deferral of a 401k would likely compare to the equity and mortgage deduction advantages of home ownership.

Answer 8

Ask the seller to cover your closing cost a lot of times they will when their selling

Answer 9

Your house will eventually grow more in value than
$4500.00 in a 401K.
Buying a homewill make you all-around more stable-don't hesitate.

Answer 10

no way..............your crazy!