Home Buying in 60640>Question Details

Bird, Home Buyer in 60606

First time buyer - do I use all my savings?

Asked by Bird, 60606 Sat Sep 29, 2012

I would like to make an offer on a condo and I have 5% for the highest amount I am willing to go to, but it would wipe out my savings - leaving me with $3.5k in my current account. I need advice on whether it's worth doing that to take advantage of the current low interest rates and get on the property ladder. The monthly repayments are no issue, they aren't much more than I'm spending on rent (though I know home ownership comes with additional costs which need to be factored in, which is why I am cautious about using all my savings).

Is it worth making a withdrawal from my 401k to use towards the down payment and keep back some of my savings - or are the long term implications of this not worth it? Help!!

Help the community by answering this question:


Do not drain your savings. Along with the benefits of homeowner ship comes additional costs that could quickly put you in a very uncomfortable position.
If you are really determined to purchase a home then consider a lower down payment option. We offer conventional financing with as little as 3%down. It's not a huge difference but it may be enough to give you the cushion your looking for. If you would like to talk about your options please feel free to contact me at your convenience.
Sam Sharp
Senior VP of mortgage Lending
Guaranteed Rate
0 votes Thank Flag Link Sat Sep 29, 2012
That is really a personal decision that you have to make. Is not a good idea to borrow money from your 401K, even that the IRS allow you to take 50 percent of your vested balance for your primary residence.

Best of Luck,

Maria Cipollone

2 votes Thank Flag Link Tue Oct 2, 2012
do you mean a withdrawal or a loan against your 401K. withdrawal is a "no" as you need to pay penalty towards IRS and early withdrawal fee. Loan however for 6yrs at say 4.5% is a great idea. ...why ? because you pay the interest to who ...? to yourself !!..plus you just freed up some capital to make a purchase of a areal estate at a price point that is all time low......this is exactly what I did ...let me know if you need more and I will be more than happy to answer - thanks
1 vote Thank Flag Link Sat Oct 6, 2012
This is a situation that happens to many buyers. So it's a great question.

The financially sensible answer, and litigiously correct one, is to keep part of your savings.

But let's say you are healthy and 'young'. You have no debt. You earn what most would call a "good living". You have been looking at places for a year, and due the unique space/location you desire, this has been the only place to come on the market. You have the ability to replenish your savings in a year or two. This could be a very strong reason for making the purchase now.

A condo shouldn't have the surprise costs that a home might. It has a lot of mental costs that you may not want to deal with after several months but that's another story (5 part novel).

Consider down payment assistance programs like IHDA, if you qualify.

Good luck. You'll be fine. Just don't get fired.
0 votes Thank Flag Link Thu Oct 4, 2012
I personally think you should keep a good cushion in savings and also have extra money handy for maintenance and any unforeseen issues that could arise with the property. Might be good to seek the advice of an accountant in this case -- seems risky to me, no matter how good of a deal you think you are getting on the condo. Good luck!
0 votes Thank Flag Link Tue Oct 2, 2012
do not use all savings.. leverage yourself and put money in savings account and pay principle
0 votes Thank Flag Link Mon Oct 1, 2012
I always recommend that a borrower not use all of their savings toward the purchase of a home. You will want to keep money in savings for emergencies (Maintenance to the condo). Atleast six months worth of payments is the recommended amount.

If you are a first time homebuyer there are some programs that are available for down payment/closing cost assistance thru Illinois Housing Development Authority (IHDA). Please contact me at the below phone number or email for more information.

Good Luck!

Nick Nelson (NMLS#384413)
1st Step Mortgage Group
6876 Spring Creek Road, Suite 124
Rockford, IL. 61114
815-289-0880 - Phone
nickn@1stepmortgage.com - Email
0 votes Thank Flag Link Mon Oct 1, 2012
No. Wait a year. Get more money together to let you put down at least 10%. That dream home needs to not turn into a nightmare, and you don't have enough saved up yet.
0 votes Thank Flag Link Sat Sep 29, 2012
I would not drain any account in order to purchase a home, I would recommend that you speak with one or two lenders to see what your financing options are; yes, home-ownership can be pricey at the start, but it is not worth tapping into your retirement accounts.
0 votes Thank Flag Link Sat Sep 29, 2012
Do not extend yourselves too far, buying a home is wonderful, but be all stressed out with your funds is not a good idea... wait look for another property, or wait a few months and save more money is
good advice...
Also are you working with a Realtor your own Buyers agent? If not you should so that you will not pay more for the property, that it will appraise out etc. etc. be careful there are so many steps and details to watch out for... read on it may help you:

I am wondering why you ask this question here at Trulia, if you are an interested and determined
buyer, you definitely should connect with a local Realtor, a buyers Agent, ie a Realtor who will be on
your side, protecting your interests, finding the right property, arrange showings, answer all your
questions, help you right a good offer, get you also pre-approved for a loan, and negotiate on your behalf the very best sale price and terms and if you commit to one trusted Realtor, he or she will commit 100 % to you and his or her services if you make an offer on a property listed by a Realtor/Brokerage in the multiple listing service will be FREE to you, as Buyers Agents are usually
paid by the seller's side, out of the sellers proceeds at the closing table...

Why would you want to do this on your own, when there are so many details to be taken care of the
right way and so many details need to be paid attention to, inspection appraisals, loan commitment, walk thru etc. etc. in order to bring an offer to a fully executed contract and that to successful closing and home purchase.

Give it a second thought and hopefully you will decide to work with a trusted Realtor, who is experienced in your areas of interest. Please commit to only ONE Realtor!! If you need recommendations get back to me I gladly forward you names..

Sincerely yours,
Edith YourRealtor4Life & Chicago and Northern Illinois Expert

Working always in the very BEST interest of her clients, Buyers, Sellers and Investors alike....
And always with a SMILE 
Covering for @Properties the city of Chicago, all N and NW suburbs, the fine homes on the
North Shore, and many of the W and SW suburbs, and with her trusted Partner Agents all of
the US and worldwide properties. Edith speaks French, German, some Spanish and other.....
@Properties, 30 Green Bay Rd, Winnetka, Illinois 60093 ---- EdithDoesItRight@yahoo.com or EdithSellsHomes@gmail.com Check out my website at htttp://www.tinyurl.com/MeetEdithHere
get to know me better and learn about my experience, expertise, services available and letters of recommendation of former clients..... Also you can sign up on my site to search for properties in my expanded service area. HAVE THE MOST WONDERFUL DAY :)
0 votes Thank Flag Link Sat Sep 29, 2012
As a first time buyer you always must have savings left over for the unexpected when purchasing a home or condo.

I would highly not recommend borrowing on your 401k as you will borrow with pretax money as that is how it went into the 401k and then you will pay back with after tax money your debt making your downpayment even higher than your savings if you were to buy now.

I would continue to save and buy within your means when the timing is right. Not only do I have experience in Real Estate I have a financial background and it is so important to look at your entire financial picture when buying a home.

Because of all the shadow inventory available ( short sales and foreclosures) that are coming into the market in the next few years there will be plenty of buying opportunities.

There are also homes out there with less than 5% down to checkout.

Talk to an agent you can trust and a lender who will guide you every step of the way.

0 votes Thank Flag Link Sat Sep 29, 2012
Do not use all your savings!

I understand wanting to get on the property ladder, but you will do yourself well to buy low instead of stretching yourself thin.

Buy something that is well within your means, and sleep easy knowing you have a cushion in the bank, with extra money to spend and save each month.
0 votes Thank Flag Link Sat Sep 29, 2012
I think that if you need to ask the question, the answer is probably do not do it. Interest rates are not about to go up very much in the next year or so. Perhaps just wait a while and save more.
During the 'bubble' years buyers frequently withdrew money from their 401K and other places just to buy something because lenders would lend to anyone as long as they had a pulse. Those days are over.
0 votes Thank Flag Link Sat Sep 29, 2012
Thank you for your answers!

I will be there for at least 5 years, if not much longer. My monthly income is good, and the monthly repayments would be about 30% of it. I can definitely make adjustments to my lifestyle to live more frugally and am willing to eat ramen noodles for a long time if it means i can get what would be my dream first home. I guess I'm just looking for reassurance that I'm doing the right thing as it's scary decision to make.
0 votes Thank Flag Link Sat Sep 29, 2012
This is totally up to you. I would sit down and see how the finances work, and if you will be strapped for cash each month. You never want to be house poor.
0 votes Thank Flag Link Sat Sep 29, 2012
I don't know, Bird - I think that people should have enough in savings to cover six months of living expenses AFTER they close on their purchase.
0 votes Thank Flag Link Sat Sep 29, 2012

It reallyh depends on your situation. If you can recapture savings with the diference between rental and mortgage within a reasonable time and you can work on rebuilding an emergency fund as well then it would be worth it for me. Solely based on the fact of my mortgage being lower than my rent. Making adjustments is part of life in order to acheive certain goals. Make a plan and stick to it.

Call me if you have any further questions 773-750-4311

Best Regards,

Laura Rivera
Betancourt Realty
0 votes Thank Flag Link Sat Sep 29, 2012
If you have a self directed IRA account that will allow you to buy real estate then I would do it. But think about how long you intend on living on a condo. If you plan to stay 5 years then do it. If you plan only 2 years and then will be in market to buy SFR then hold off buying condo. One exception would be if condo rules allow rentals then buy a condo now and rent it out should you want to buy a house later.
0 votes Thank Flag Link Sat Sep 29, 2012
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