Home Buying in Virginia>Question Details

Adel, Home Buyer in Queens, NY

My husband and I are withdrawing funds from our 401K to put as a down payment on our first home. We dont have

Asked by Adel, Queens, NY Tue Aug 12, 2008

large bank accounts because we have been paying down debts. Do many people buy a home with 401k w/d, will we have a hard time since it is not ready cash? We can withdraw the money but we need a letter with the amount we are putting on the home (for tax purposes). Also, how would this work with taxes? We want to pay the taxes on that money now not later, but the amount we will need to withdraw will be different from what we will actually be putting down on the house, it will have to be minus the taxes. Is there a way to do this and is this done ofter?
Thank you

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Answers

3
Lending answer:

There are severalissues to consider when withdrawing funds from a retirement plan to purchase a home.

1.) What limitations does the 401(k) plan place on withdrawals?
2.) Can you borrow against the 401(k) rather than withdrawing (employe question)?
3.) You will not pay an early withdrawl penalty for the purchase of a primary residence, but depending on the plan, you may have to pay income tax
4.) You should speak with your HR folks AND a CPA before making any chnages to your 401(k)
5.) If the 401(k) withdrawl is in the form of a loan, the underwriter will need information from the plan provider regarding the terms of the loan - amount, repayment term, interest rate, and monthly payment - which will be included in your qualifying debt ratio.

Another consideration:
FHA or US RDA loans may be a better alternative.

FHA requires just 3.50% down payment. The down payment may be from your own funds, a gift from an immediate family member, or a grant from a gov't agency.

US RDA loans require ZERO down but are limited to rural areas. You can check to see if your prospective home is eligible by checking this site: htt://www.eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
1 vote Thank Flag Link Tue Aug 12, 2008
If you need to borrow from your 401K for a downpayment, then you can not afford a house. You may not like to hear this. Save your money for a few years, housing prices are not going up anytime soon--it could be decades.
0 votes Thank Flag Link Tue Aug 12, 2008
Hi Adel,

Deep River hit the nail on the head, I give his answer a thumbs up. I couldn't have said his points any better. Have you found a mortgage company yet? If not, I'd enjoy the opportunity to earn your business. Please call me at 877-534-7420 or email at alapitan@cavaliermortgage. com

Thanks,

Alvin Lapitan
Mortgage Specialist
0 votes Thank Flag Link Tue Aug 12, 2008
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