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.
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!
I also offer FHA Access, which is only half percent down payment program with a minimum 580 fico score requirement. This program can also contribute towards closing costs. I specialize in Under 640 Fico Score Loans if that becomes an issue. I offer credit repair at no cost to raise fico scores to qualify. Here is a brochure and needs list to qualify. It only takes a few minutes to ask a few dozen questions to pre-approve you to buy.
CHF Access half percent down brochure, pdf
Sheryl Arndt, standard needs list checked, pdf
Why Rent brochure
CHF Access income limits http://tinyurl.com/8lzf8he
Sheryl Arndt, Broker â€“ Loan Officer
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 Â½). 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.
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!!
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.
Kitty Chan DRE# 01153089
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.