Home Buying in 94577>Question Details

Kingmoi510, Other/Just Looking in Tracy, CA

Is it helpful to use my 401k for a down payment for a home ?

Asked by Kingmoi510, Tracy, CA Wed Sep 19, 2012

I know I can take out money maybe it could help me

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Good afternoon,

As many years as I've helped Homebuyers as a Mortgage Banker---23 years---I have strongly advocated against taking money out of a 401k for the purchase of a home. That's money set aside for your retirement. If you can find a way to purchase a home with cash you save then try to do that instead of raiding your retirement account. You'll thank me 20 or 30 years from now.

Meet with a Mortgage Banker and get Prequalified. You might be surprised to find you have enough cash for a down payment now rather than hitting the retirement account. I sat with a young couple just two weeks ago who planned to do what you propose. They were shocked when I told them they had sufficient cash savings to qualify for an FHA Insured Loan with 3.5% Down payment.

You might be thinking, "If I take money out of the 401k and put that down then my monthly payment will be a lot lower." The fact is, with rates so low you'd have to put A LOT of money down to get the kind of reduction in payment most Homebuyers I've met consider substantial.

Use this rule of thumb: for every $10,000 you put down your mortgage payment is lower by just under $48.00 monthly. With current 30yr Fixed rates so low you're not going to get the "bang for the buck" you anticipate by bringing in extra money from your retirement account.

Trevor Curran
NMLS #40140
1 vote Thank Flag Link Wed Sep 19, 2012

That is a great option in some cases. To leverage 401k to buy your first home can have some great advantages. It can be used for down payment as well as closing costs. Feel free to check out my website anytime for ideas and research buying Real Estate. If you have questions on loan products feel free to contact myself or Trulia professionals anytime!


Web Reference: http://www.loansquawk.com
1 vote Thank Flag Link Wed Sep 19, 2012
While it is possible to borrow from your 401K retirement account to help with a home purchase, I do not recommend it in most cases.

You would be borrowing. That means that you would have to pay the money back with interest. (The good news is that the interest also becomes part of your 401K.) The bad news is that many people do not repay these loans. They end up having to declare the borrowed money as income and pay taxes on it. They also have to pay a penalty on the amount withdrawn if they are not of retirement age (at least 59 ½). That makes borrowing from a 401k very expensive.

And there is more bad news if you do not repay the loan. The money that you planned to have for your retirement will have been spent on the house and will no longer be available. Yes, the money may still be represented by equity in the home but that presents a different set of problems.
0 votes Thank Flag Link Wed Sep 26, 2012
Absolutely! You can borrower up to 50% of your 401k funds. The lender will not county the payment against you.
Also, depending upon your income and family size, you may be eligible for the CHADAP, first time homebuyer's down payment assistance program.
You can also buy in Mountain House and Brentwood with the USDA Rural housing loan which requires little or no down payment.
We have options here!!
0 votes Thank Flag Link Thu Sep 20, 2012
Anything can help, when money is not available now & or in documentation.
Make sure to find out from your 401K account If that money is to be available at the time you need it. or do you need to apply for it now and give 2-4 weeks for the money to arrive. and what is the interest rate on that and how interest is being accumulated in the future !
and in the meanwhile to help you out to show the money you have ( we call Proof Of Fund )for offer when you find your dream home. and or to show your lender that you have the down payment in order to get pre-approved.

Good Luck!

Kitty Chan DRE# 01153089
0 votes Thank Flag Link Wed Sep 19, 2012
Just to add to Darena's comment. Its not always the case it has to be paid back. She may be referring to a 401k loan. There are instances you can liquidate your 401k to purchase a home.

Web Reference: http://www.loansquawk.com
0 votes Thank Flag Link Wed Sep 19, 2012

You can use it for a down payment....Keep in mind that if you borrow it, we will use the payment as a liability. That "may" affect the loan amount qualify for.

My recommendation is: Get in touch with a Mortgage Professional. Have him/her properly qualify you before you go down that route. The process is simple and fast. You can have your answer faster than you can imagine. Contact me directly for more detailed answers.

Good luck!

Ivan Diaz
Mortgage Professional
415-271-7740 direct
0 votes Thank Flag Link Wed Sep 19, 2012
You can make a downpayment by borrowing from your 401K, but it has to be paid back. I think it might be better to ask for a seller's concession to help you with closing costs instead....
0 votes Thank Flag Link Wed Sep 19, 2012
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