Getting down payment for home purchase from 401k

[Carly_Roach]

WOW did you take it personal.

WOW no I didn't.

I have to wonder about the quality of "advice" if someone has to use scare tactics to convince others that they are right and the other person is wrong. Of the professionals I know, the best ones will advise someone once, maybe twice, then let it go. They know they're right, but they're also smart enough to know that they don't have to go around proving they're right.

If they are right, then the other person will find out soon enough and they're off the hook because they warned them.

Seriously, dude. Let it go already.

 

[portocall]

OP, I personally wouldn't do it, but that is only after watching what my in-laws went through. They borrowed against theirs to buy in other state. They borrowed way more than they should have because they thought their other home would sell quickly. They did this in 2006. It is 2010 and they still have TWO homes. The old one, well, the neighborhood is good and all the other houses sell, but theirs didn't. At first, it wasn't priced to sell, but then it was and still didn't sell. They were not able to repay the loan and got hit with major penalties. You sound like you have a realistic plan but with today's crazy housing market, I would look for another way.

For me to borrow against my 401K would also mean that my employer would stop all matching funds for two years. That alone is what keeps me from thinking of touching it.

 

[BelleWDW]

WOW no I didn't.

I have to wonder about the quality of "advice" if someone has to use scare tactics to convince others that they are right and the other person is wrong. Of the professionals I know, the best ones will advise someone once, maybe twice, then let it go. They know they're right, but they're also smart enough to know that they don't have to go around proving they're right.

If they are right, then the other person will find out soon enough and they're off the hook because they warned them.

Seriously, dude. Let it go already.

Honestly-I think their biggest worry should be NOT selling the house & then the 401k withdraw would be highly taxed with a penalty.


At least the first house is paid for-so it's not like having TWO mortages?

 

[manning]

Well Carly, there were some suggestions made that sounded like a better way to do it.

If the OP wasn't aware of them this would help to possibly make a better decission.

With that I will LET IT GO

 

[Chernabog#1fan]

Some 401ks do not allow for in-service withdrawals, those that do allow for them are taxed and charged a penalty with just a few exclusions on the penalty piece. If you are buying a primary residence you are usually exempt, but it has to be deemed a hardship in the sense that you were unable to secure funding via an alternative method (ie. Savings).

If you are under 59 1/2, you will still be charged a penalty even if the house is a primary residence. You can only withdraw it from an IRA for the purchase of a house without a penalty, not a 401k.

However, since she is a taking a loan, there is no penalty unless it becomes a deemed distribution (fails to pay it back).

 

[Antonia]

An update: Well, we did it. We took out a 401k loan for our down payment and even got enough extra to do a few things to the new house.

We closed on our new home on Friday. On Saturday, I was hosting a baby shower. DH called to say that someone was coming to look at our house at 5 pm! So before we could even list it with a realtor, a person who heard we were buying wanted to come look at the house we plan to sell! I know this is a real stroke of luck!!!

A young man and his fiancee came to see the house and yesterday (Tuesday) he called to make an offer. Both have good jobs and probably will have no problem getting financed.

Once we sell, we will pay back the 401K loan, do a stream-line refinance on our new home and put some of the proceeds from our old home toward the mortgage and knock our new mortgage down from 30 years to 15 and have about the same monthly payment. I also plan to put some of the proceeds into a savings account that we can access in case of emergency.