401K Funds for Purchase of a home

[Anonymous]

I will be going thru a program called NACA to purchase my home.  They do not have a down payment requirement, however you can use funds traditionally used for a downpayment to permanently buy down your interest rate.  I will be using 401K funds for this, does anyone know if I can write that off on my 2009 taxes (as I will get dingged for doing this but I need the funds) since it's going towards paying interest and if so it is a 1 time write-off or over a period of time. 

This is the wording that comes from the provider that manages my 401K program:

Purchase of a primary residence

Costs directly related to the purchase of your primary residence (EXCLUDING mortgage payments)

Documentation you'll need...

An executed copy of the purchase agreement or construction contract, including the closing date. (The closing date must be a future date no more than 90 days away. Closing costs already satisfied are not eligible reasons for a hardship withdrawal request).

1. A copy of estimated closing costs in the form of a "good faith estimate" (Available from your mortgage lender).
2. If not already included in the estimate, supporting documentation must include:

• "Total cash required at time of closing" or "direct out-of-pocket expense"; and
• Your name and the address of the home being purchased

Thanks for anyone's input...

[Watchmann]

You will get penalized for using 401K funds before age 59 1/2.  You'll pay Federal Income taxes on the withdrawal + 10% penalty.  If the money was in a Traditional IRA you could withdraw $10,000 as a first time homebuyer and just pay the income tax (no penalty).  It's never good to withdraw funds from 401K's or IRA's unless you absolutely have to.  That's why the penalties are there.

In this case it would not seem to make sense to do what you are contemplating.  It will cost you more money than it is worth.

Message Edited by Watchmann on 07-14-2009 06:10 PM

[DallasLoanGuy]

are you borrowing from the 401k or taking money out?

points are typically tax deductible.... but if you dont exceed the standard deduction then the points wouldnt save you anything on the taxes.

[Anonymous]

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@Anonymous wrote:

I will be going thru a program called NACA to purchase my home.  They do not have a down payment requirement, however you can use funds traditionally used for a downpayment to permanently buy down your interest rate.  I will be using 401K funds for this, does anyone know if I can write that off on my 2009 taxes (as I will get dingged for doing this but I need the funds) since it's going towards paying interest and if so it is a 1 time write-off or over a period of time. 

This is the wording that comes from the provider that manages my 401K program:

Purchase of a primary residence

Costs directly related to the purchase of your primary residence (EXCLUDING mortgage payments)

Documentation you'll need...

An executed copy of the purchase agreement or construction contract, including the closing date. (The closing date must be a future date no more than 90 days away. Closing costs already satisfied are not eligible reasons for a hardship withdrawal request).

1. A copy of estimated closing costs in the form of a "good faith estimate" (Available from your mortgage lender).
2. If not already included in the estimate, supporting documentation must include:

• "Total cash required at time of closing" or "direct out-of-pocket expense"; and
• Your name and the address of the home being purchased

Thanks for anyone's input...

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You can take the hardship or borrow, correct?  Why not just borrow so you wont take the tax ding?

[Anonymous]

Let's try again. Not sure where my other post went.

The reason I didn't want the loan was to keep my DTI low. I lost sooooo much that I'd rather it go to a new home rather than some unknowns pockets. I can up the amt and they directly will pay the 10 percent and write me a check for the feds

[Watchmann]

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@Anonymous wrote:
Let's try again. Not sure where my other post went.

The reason I didn't want the loan was to keep my DTI low. I lost sooooo much that I'd rather it go to a new home rather than some unknowns pockets. I can up the amt and they directly will pay the 10 percent and write me a check for the feds

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If that is the game plan you'll have to do the calculations to see if the buy down costs net you a positive rate of return taking into account the penalties you will pay on the withdrawals.  And remember, once that money is witdrawn from your Plan it can't be put back in, and that money was supposed to be for your Golden years.  You'll have to find some other way to pay for that Oak rocker on your front porch in the future.