topic Can I use my 401k to help me purchase my dream home? in Mortgage Loans

Can I use my 401k to help me purchase my dream home?

payingoffdebt001 — Sat, 22 Sep 2012 17:42:14 GMT

OMG the house of my dreams just went back on the market. Too bad I dont feel I qualify yet. IS THERE a possiblity??

I could borrow from my 401k for home loan - currently have 30,000 not sure how much I can borrow. But my problem is that my scores dropped because I charged up on some cards and cant get them down until the end of year. Unless I use some of my 401k money to help with this?

I am in love with the house..is it a sign by it coming back up avaiable? Should I give it a shot? The house is listed for 109,000. I earn in the 60s. I do have two derogotories on my report that are from Nov 2009 (Auto repo) and 2007 (rental lease). Too largef or me to pay off - but I'd be wiling to get into a payment plan if needed.

Can I do something with my 401k money to help?? I heard there is a different way of taking money out for a home loan compared to a regurlar loan so I dont know how this effects my DTI in the end.

Re: Can I use my 401k to help me purchase my dream home?

seemund — Sun, 23 Sep 2012 01:26:38 GMT

You could do a withdrawal for certain reasons, including purchase of first home.

This can usually be done using your account's website.

Just remember: this is a withdrawal, not a loan. The money will not be repaid, and you will be depleting your retirement funds.

Re: Can I use my 401k to help me purchase my dream home?

Cloudlb — Sun, 23 Sep 2012 02:58:09 GMT

it depends on your plan -- review your plan documents and ask your plan administrator.

With mine, I cannot withdraw unless 1) there's a hardship (which is really not the case here; and 2) I take a loan from it first. Even then, there would be a tax penalty. I can (and may) take a loan from it, but the catch is that if I were to change jobs, I might have to pay the loan back in full. Very risky.

Yours may be different. Some Roth 401ks, for example, will allow you to withdraw an amount for a house downpayment without penalty. But again, you need to check your plan documentation.

Re: Can I use my 401k to help me purchase my dream home?

payingoffdebt001 — Sun, 23 Sep 2012 12:58:31 GMT

Thanks for the replies, I've though it through and will wait it out. My plan does alllow for mortgage withdrawal and also loans but I think I'm going to stick wih my original plan of waiting until next year. As I thought more of that house I'm in love with - it may not be what is best for us. I get a large commision check in April and can also use my income tax return for the down payment and paying down cards to qualify. Then at least I leave my 401k alone. Sorry, just got excited when I saw that house I've been watching come back on the market after it went into pending. I think I'm staying off the home sale website until I'm ready so I dont jump the gun again.

Re: Can I use my 401k to help me purchase my dream home?

Cloudlb — Sun, 23 Sep 2012 20:35:16 GMT

good for you. I was going to mention the "falling in love with a house" thing, but looks like your head prevailed over your heart.

Re: Can I use my 401k to help me purchase my dream home?

Anonymous — Sun, 30 Sep 2012 21:11:40 GMT

From the research I've done I do not believe you can withdraw from your 401k without significant tax penalties. The first time homebuyers exemption is for IRAs not the 401k program. You most likely can borrow against your 401k without penalty.

Re: Can I use my 401k to help me purchase my dream home?

Anonymous — Sun, 30 Sep 2012 22:11:44 GMT

@Anonymous wrote:
From the research I've done I do not believe you can withdraw from your 401k without significant tax penalties. The first time homebuyers exemption is for IRAs not the 401k program. You most likely can borrow against your 401k without penalty.

Wrong, all hardship withdrawls approved by your benefits management will be straight taxed at 10%. If you take the money out and do not use it for its purpose(when you do your taxes don't have the new address listed as your primary), you will be penalized an additional 10% and the money will be taxed accordingly to your bracket

Re: Can I use my 401k to help me purchase my dream home?

DallasLoanGuy — Mon, 01 Oct 2012 01:58:43 GMT

borrow the funds from the 401k

the payments do not figure into dti

this is the est course of action for most

Re: Can I use my 401k to help me purchase my dream home?

Anonymous — Mon, 01 Oct 2012 05:51:20 GMT

@DallasLoanGuy wrote:
borrow the funds from the 401k

the payments do not figure into dti

this is the est course of action for most

+1, if you have available loan amounts and can afford to pay it back it hurts a heck of a lot less since you'll be paying it back with interest

Re: Can I use my 401k to help me purchase my dream home?

Anonymous — Mon, 01 Oct 2012 10:59:29 GMT

Noones even asked for your profile yet. Have you yourself calculated your front and back end ratios?

Also cant you do a FHA only put down 3.5 and then put some of that 30 on yoru credit cards?

Re: Can I use my 401k to help me purchase my dream home?

webhopper — Mon, 01 Oct 2012 15:06:57 GMT

@DallasLoanGuy wrote:
borrow the funds from the 401k

the payments do not figure into dti

this is the est course of action for most

+1... This is what I did. I borrowed 8.5k from my 401k to help with DP and closing costs in January 2012 of 11k on a conventional mortgage w. 5% down, 3% sellers paid closing costs, 175k sales price. The 401k loan payments did not factor into my DTI since it was secured by my own financial assets. My 401k balance is about 50k and I'm 31. I paid off the 401k loan in April with my bonus. Then I took out another loan against my 401k and paid off my husbands dodge which he bought before our marriage. The interest rate was 21% on that dodge... I would much rather pay myself 5.5% than pay Americredit 21%

Re: Can I use my 401k to help me purchase my dream home?

thrillege — Tue, 02 Oct 2012 01:19:49 GMT

@webhopper wrote:
@DallasLoanGuy wrote:
borrow the funds from the 401k

the payments do not figure into dti

this is the est course of action for most

+1... This is what I did. I borrowed 8.5k from my 401k to help with DP and closing costs in January 2012 of 11k on a conventional mortgage w. 5% down, 3% sellers paid closing costs, 175k sales price. The 401k loan payments did not factor into my DTI since it was secured by my own financial assets. My 401k balance is about 50k and I'm 31. I paid off the 401k loan in April with my bonus. Then I took out another loan against my 401k and paid off my husbands dodge which he bought before our marriage. The interest rate was 21% on that dodge... I would much rather pay myself 5.5% than pay Americredit 21%

Not telling you what to do. But at your age. And having that much already in there. You should have just withdrawn that amount to pay for a house. Not borrowed it. Buying a house is one of the reasons you're allowed to withdraw money from it

Re: Can I use my 401k to help me purchase my dream home?

Anonymous — Tue, 02 Oct 2012 03:04:15 GMT

@thrillege wrote:
@webhopper wrote:
@DallasLoanGuy wrote:
borrow the funds from the 401k

the payments do not figure into dti

this is the est course of action for most

+1... This is what I did. I borrowed 8.5k from my 401k to help with DP and closing costs in January 2012 of 11k on a conventional mortgage w. 5% down, 3% sellers paid closing costs, 175k sales price. The 401k loan payments did not factor into my DTI since it was secured by my own financial assets. My 401k balance is about 50k and I'm 31. I paid off the 401k loan in April with my bonus. Then I took out another loan against my 401k and paid off my husbands dodge which he bought before our marriage. The interest rate was 21% on that dodge... I would much rather pay myself 5.5% than pay Americredit 21%
Not telling you what to do. But at your age. And having that much already in there. You should have just withdrawn that amount to pay for a house. Not borrowed it. Buying a house is one of the reasons you're allowed to withdraw money from it

This is terrible advice. If she didn't NEED to withdrawl it, and could afford to pay it back it isn't smart to just withdrawl. There is taxes on that amount that you immediately lose. Having 50k in 401k is great, but it takes a lot more than that to retire. Please don't solicite uneducated advice

Re: Can I use my 401k to help me purchase my dream home?

webhopper — Tue, 02 Oct 2012 03:34:08 GMT

My plan allowed for a loan but not a withdrawal. I was expecting a large bonus in march. I knew this would be a short term loan.... if I could have waited until march to purchase I would have. Unfortunately I could not wait. Besides; I have two homes. And it makes me sleep better at night knowing that I have a safety net. 10% of my income is currently being invested into my 401k. My employer also puts 7% in on top of my 10%. Another 2800 per month goes toward mortgage payments for my properties.

Believe me; I know very well how it feels to have NOTHING. Not even food to eat or to feed to my kid. I wont be there again. I definately wont deplete my piggy bank.

Personal finance is very personal I trust my education and my gut enough to know how much risk I can tolerate in my finances and in my investments. So far I'm very happy with the results.

Also; you can buy your 1st house using retirement funds. I bought my 2nd house in January; not my first... so the withdrawal rules were not applicable to me without tacking on taxes and penalties.

Re: Can I use my 401k to help me purchase my dream home?

thrillege — Tue, 02 Oct 2012 13:16:46 GMT

@Anonymous wrote:
@thrillege wrote:
@webhopper wrote:
@DallasLoanGuy wrote:
borrow the funds from the 401k

the payments do not figure into dti

this is the est course of action for most

+1... This is what I did. I borrowed 8.5k from my 401k to help with DP and closing costs in January 2012 of 11k on a conventional mortgage w. 5% down, 3% sellers paid closing costs, 175k sales price. The 401k loan payments did not factor into my DTI since it was secured by my own financial assets. My 401k balance is about 50k and I'm 31. I paid off the 401k loan in April with my bonus. Then I took out another loan against my 401k and paid off my husbands dodge which he bought before our marriage. The interest rate was 21% on that dodge... I would much rather pay myself 5.5% than pay Americredit 21%
Not telling you what to do. But at your age. And having that much already in there. You should have just withdrawn that amount to pay for a house. Not borrowed it. Buying a house is one of the reasons you're allowed to withdraw money from it

This is terrible advice. If she didn't NEED to withdrawl it, and could afford to pay it back it isn't smart to just withdrawl. There is taxes on that amount that you immediately lose. Having 50k in 401k is great, but it takes a lot more than that to retire. Please don't solicite uneducated advice

Actually it's not uneducated advice. It's a matter of opinion. You don't have to agree with it. So save your pathetic insults. It says a lot about you as a person. I've purchased two homes. Yes there are taxes involved when you withdraw from your plan, but if you're purchasing your first home. Knowing that a home is likely the largest purchase you will make. And considering we're only talking $8000. At 31, it's absolutely a good option.

Again, you don't have to agree with it. I'm sure if you talk to 20 Financial Advisors. You will get several opinions on this. Some may even tell you to do a combination of both. Doesn't make either opinion uneducated, right, or wrong.

Re: Can I use my 401k to help me purchase my dream home?

payingoffdebt001 — Tue, 02 Oct 2012 13:56:33 GMT

For ME this year would probably be a good year to withdrawal if I decided to do that. I'm in the middleof adopting two children from CPS and I heard (but have not checked) that there is an adoption credit I could claim. So its possible this credit could offset the 401k withdrawal tax/fine. BUT the house I am "now" looking at (after I came to my senses regarding that "dream"home that popped up) - IF I WERE TO qualify for a home loan is $41,000 4 bdr 2 bath in the neighborhood I was wanting. Nice brick home at an Unbelievable price. Does need carpeting and some sheetrock work but has a new roof and good bones. Buying a home like this would be a savings in the end. I'd pay less compared to my rent and it would be money going toward my own benefit instead of a landlords.

BUT because a house note at this price range would be cheaper than my current rent - that means I could afford to take out a LOAN from my 401k and still be just fine with my monthly budget. Pay back into my 401 and help build that back up.

If I wait just a few months, I can pay down my credit cards monthly and use my bonus money & Income tax refund to purchase a home and NOT touch 401k money.

so I'll just practice patience for now. This also gives my current credit file time to age more. I'm currently in the 600s with my credit scores but do have 2 baddies that are currently 3 & 5 years old.

Thanks for the replies - it does help me feel better knowing that some do use the 401k money for the purchase of a home so I dont feel like a loser should I need to use it.