is it a good idea to use 401k money to put a down payment on a house?

Question

I live in a VERY expensive area and in order to buy a house, I think this is my only option. THANKS!

Answer 1

Taking money from your 401k is a bad thing to do to yourself and your future. The money in your 401k is the money you will use to live off of when you retire. We are in an age that when you are old enough to collect Social Security it will already be gone. You cannot rely on Social Security benefits for your expenses when you retire. Also, when taking money out of a tax free 401k you will have to pay penalties and then pay taxes on the money you removed. If you absolutely have to have a down payment it would be cheaper in the long run to get a personal loan. I don't think that is a very good option though. Your best bet is buy a house you can afford without a substantial down-payment. You will have to pay PMI (private mortgage insurance) until you have 20% equity in your home, but that is very minimal compared to the costs of draining your retirement account. Talk to banks and mortgage companies to get as many options as you can. You also need to figure out how much house you can afford including property taxes and monthly utilities. My wife and I just purchased a house and we decided to go smaller than we originally wanted in order to not be living off our credit cards. This way we can still have a life with vacations and other activities. Another option if you are handy is to buy a forclosure or fix'er upper. Good Luck.

Answer 2

The standard rule of thumb is NO. The only sitch in which you should pull money out of your 401k is for an emergency. In effect, when you withdraw from your 401(k) you are borrowing from a very stingy part of yourself. Its a loan (so you're taking out a loan to put a down payment on a mortgage, another loan) that you MUST pay back. If you don't pay back your 401(k), it will default (because from the point of view of the retirement management company, it ISN'T your money...it's theirs until you are 65). So, in effect, if you borrow money from your 401(k) you will have TWO loan payments a month; a mortgage and paying back your 401(k) (because the only way you could get that money clear and free is close the 401(k) and there are stipulations and penalties associated with that).

Check with the retirement management company, because some (I daresay most) won't even LET you pull out the money in order to use it as a down payment on a house. Most only allow withdrawals for:

- retirement
-closing the account at job separation
- catastrophic situations (like you lose everything, or get fired, etc)
- you die

Figure out if you can even pull out the money, and if you can, my advice, DON'T.

Answer 3

I am of the opinion that 401k is for retirement or dire emergencies only. The real estate market everywhere is soft so you can always find a way without tapping your 401k. It just might take a bit more patience and alot of offers by a sympathetic realtor representing you.

Answer 4

It can be. Loaning yourself money from your 401K means you pay yourself a better rate than you could get elsewhere. It also gives you some tax advantages. You pay a 401k loan back to your self. If you can take it without getting hit with tax penalties you should be fine and I would recommend doing it.

Answer 5

Dude I observed your different subjects and you're only tryna waste the money on something you could arent you?...=P If I had 401k i could purchase myself a Ferrari. yet anyhow i think of you should make a down value. yet when I had that lots money and grew to become into using it for a house i could purchase a house with an activity fee fairly of down. in case you pay down, the domicile will in no way ever be yours. yet verify this in the journey that your no longer even married than heavily only go away the money on my own for retirement. you could continuously bypass domicile on your mom and dad and smooch off of them. =P