Take money out of 401k till house sells?

Anonymous · ‎06-02-2015

I am approved to buy a new home and we want to put the money we make off our house we will be selling into the new home. New home will be around 200-230k.

I am able to take up to 30k out of my 401k as a loan where I pay myself back. We owe 68k on our current house and should be able to sell it for around 100k.

Would it be a good idea to take 20k out of my 401k to add to our down payment and then repay the 401k when our house sells?

Anonymous · ‎06-02-2015

As long as you are doing it as a loan, and not a withdrawl, the only penalty is going to be the interest (and of course the loss of interest on what you would be making on that 30k), which usually isn't very high. It doesn't even show up as a loan on your credit report. So you have to decide if it is worth what you could be making in however long you have it out for.

Anonymous · ‎06-02-2015

Yes it would be a loan, at 4.25% it says.

Once the house would be sold, I would pay it all back right away. So we are only really talking about at most a half of a year I hope.

frugalQ · ‎06-02-2015

remember, any loan that you take out on your 401k will not be able to be counted towards any reserves you may have. That may not be an issue for you, but please keep it in mind as you move forward.

Anonymous · ‎06-02-2015

What would be the benefit to you? Lower interest rate? Qualifying for a mortgage you would not qualify without it? If there isn't a benefit like that, I would NOT take the 401k loan just to increase your down payment. Upon the sale of your current home you can always make a large payment towards your new house at that time.

frugalQ · ‎06-02-2015

OP,

is your new mortgage contingent upon you selling your current home? If not, i can understand the need to take out the loan. If your goal is to get as low of mortgage as possible, and you don't have the proceeds from the sale of old house, it makes sense to borrow. The interest you pay on the loan goes back to you, so that's a plus...but, you lose the ability to make gains on the loan (although it's unrealized until you cash out).

One caveat though...if your house sells for less than you anticipate, are you prepared to continue to pay the monthly amount until the loan is paid off?

I'm not one to just advocate taking out 401k loans, but for the purpose of purchasing a house, it makes sense.....you just have to weigh the pros and cons.

Anonymous · ‎06-04-2015

I would only take out around 10k from the 401k.

House should sell for 20-30k profit, so i don't think paying the 10k back will be an issue quickly. But if it is, I would still be ok with paying that back.

The reason I would take it out would be for a lower monthly payment on the new home and possible lower interest.

I am approved for a new home weather the other house sells or not. We were thinking of renting it, but now leaning towards the sale.

Or... Does anyone know if this would be a good idea and if you can do it? Buy the house with what we have, sell the other. Then refiance the new house and put the money made as a new down payment?

frugalQ · ‎06-04-2015

when you refinance, you will have a new set of closing costs....and potential of higher interest rates.