Jenniferlb44…, Home Buyer in La Grange, IL

Is it smart to use your 401K to purchase a home?

Asked by Jenniferlb4488, La Grange, IL Wed Jul 24, 2013

If the person is 70, still working, and buying it for his granddaughter, is paying it in full with a 401K a good idea? Q

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11
Jeffrey Olic…, Agent, Chicago, IL
Fri Jul 26, 2013
There are many things to consider so it is not just a cut and dried event if it is a good idea or not. It may be but it may not. It may be better to purchase it as a second home and let her live there since interest rates are low. Get with a good realtor that can discuss options and talk to your financial planner.

Best of luck!
0 votes
Thomas Moser, Agent, East Northport, NY
Thu Jul 25, 2013
Personally, I would not dip into a 401K to buy a home, especially for someone else. That is your retirement money.
0 votes
Maria Cipoll…, Agent, Coral Springs, FL
Thu Jul 25, 2013
Jennifer,

Yes, it is possibly to use certain percent of your 401K to buy a house. It can be significant downsides to this course of action. Just, be aware that if you want to take money out of 401K plan early, you will have to pay it back. Meaning you will have your mortgage and a 401K loan payments every month. Ask your accounting if is convenient for you to do so.

Best of success,

Maria Cipollone

http://www.Flahomespecialist.com
0 votes
Chicago Mort…, , Chicago, IL
Thu Jul 25, 2013
Hi Jennifer,
Are you talking about taking a loan out against the 401k or cashing the 401k out?

If the person takes a loan out, they'll pay interest on these, typically at prime + 1%, and this interest is not tax-deductible. If the person taking the loan out is of retirment age, they'll avoid penalties, but it's reallyonly a good idea if the loan is for a financial emergency.

In your case, I think it also depends on how big the retirement account is. Cashing out a 401k loan to pay for a house might be a good investment, but no one knows for sure.

Here are some links to read more about this:

http://onswipe.investopedia.com/investopedia/#!/entry/8-reas…

http://www.401khelpcenter.com/loans.html#.Ue8Myol5mc0

If I can be of further assistance, just let me know.

Thanks,
JP

JP Marzano
Senior Loan Officer
1st Advantage Mortgage (a Draper & Kramer Co.)
jp.marzano@1amllc.com
0 votes
Manuel Brown, Agent, Chicago, IL
Thu Jul 25, 2013
Jennifer,

It is so funny you just asked that question. Here is the sweet and skinny. I was listening to a great show on NPR. IF you are taking a loan against you 401K and are actually going to pay it back it may make sense. If you are taking the cash our not in the form of a loan but a withdrawal you face stiff Tax penalties as well as the deferred tax consequences on the interest earned.

In the event you should lose your job would you be able to put the money back in your 401K from an emergency fund?

Seek out a true financial expert. But I would never just withdraw it from my 401K.
0 votes
Mike Opyd, Agent, Chicago, IL
Thu Jul 25, 2013
It would be smart to have your financial adviser answer this. There may be a penalty for withdrawing early from your 401K.
0 votes
Annette Law…, Agent, Palm Harbor, FL
Thu Jul 25, 2013
Jennifer,
This option has proven to be a true 'Best kept secret' in the purchase of real estate.
As others have stated, you will need to consult with the accountant, financial adviser and/or attorney.
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What you REALLY need to focus on is purchasing the home via a 'self-directed' IRA. Even if the granddaughter fails to fullfill her obligation, there are significant, enduring benefits. This is not a complex process, but you will need a guide. If you want preliminary data before consulting the PROS, give me a call and I'll send you the link. If you are serious, you know what to do. If you are not serious you will use that 'contact' link.

Best of success,
Annette Lawrnce, BrokerAssociate
Remax Realtec Group
Palm Harbor, FL
727.420.4041
http://RealEstateMadeEZ.us
0 votes
Riccardo War…, Agent, Bolingbrook, IL
Thu Jul 25, 2013
if you have no other source of funds i think thats a great source to use.

Riccardo Wardlow
Quality Mortgage Lending
0 votes
Bob Brandt, Agent, Schaumburg, IL
Thu Jul 25, 2013
That is a nice gesture. I would discuss it with the whole family first. And your accountant. And crunch your own numbers. And then decide if she might appreciate it more if she actually works for it herself and has her own mortgage....
0 votes
Matt Laricy, Agent, Chicago, IL
Wed Jul 24, 2013
I would speak with your financial planner and see what they have to say.
Web Reference:  http://Americorpre.com
0 votes
Curly Sue, , Texas
Wed Jul 24, 2013
Are you planning to give it to your granddaughter? I would check with your accountant on the best solution. Interest rates are low...you may decide to finance depending on how your 401K is performing.
0 votes
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