what percent should i contribute to104(k) if i'm saving for a home?

Question

Right now I'm putting in 15% with no company match. I also have an IRA that I'm not really contributing anything to at the moment, but I would like to. I really want to put 20% down on my first home, but at this point I only have about 10% saved for my target price, plus my 6 months living expenses. I want to scale back my 401k contribution to save faster for the home. But with mortgage interest rates and PMI, is putting less than 20% down on a home worth it?

My company does participace in a 3% profit sharing for the 401(k).

Answer 1

You should absolutely continue to contribute to your 401(k) plan. You should put the maximum allowable (after taking into consideration the amount you need for ongoing living expenses) into the 401(k) plan. This is saving pre-tax dollars rather than after tax dollars. This allows you to earn interest on money's you would have paid to the government in the form of taxes on your contribution.

Then borrow from your 40i(k) plan for the down payment on the home. Because your 401(k) is pre-tax dollars you will be able to save enough for your down payment faster than if you tried to save for the down payment outside of the 401(k) with after-tax dollars. This is also true because you are contributing the maximum you can afford as I described above.

Moreover, when you payback the loan from your 401(k) plan you will be paying yourself interest and you can determine what term you would like to payback into the 401(k) plan and what interest rate you would like to pay. Moreover, after you purchase the home you may take a home equity loan on the house, if and when the equity builds up, and pay off the 401(k) loan faster and then the interest you pay on the home equity loan may become tax deductible.

Get creative and you can get that home faster. You sound like a smart savings-oriented person. Congratulations on getting your part of the American Dream!!!

Answer 2

If you're not receiving a matching contribution in your 401(k), all you are getting is tax deferral. You're probably better off saving for your down payment. I would recommend, however, diverting some of those funds to maxing out a Roth IRA, assuming you're eligible.

Answer 3

Your 401k is for retirement. you could initiate a intense yeild decrease fee expenses account on account so which you could earn as much as six% at some banks!! it is extensive! save save save because of the fact in case you will purchase a house you could have a minimum of three x the loan fee for "reserves". additionally, artwork on paying down debt. you pick your debt to earnings ratio to be around 29% till now the loan fee.

Answer 4

Stop putting any $ into a 401K if they are not matching it