401k Withdrawal for a house?

-
JR

JR

Pissed off senior member.
Joined
Oct 17, 2005
Messages
4,404
Reaction score
20
Location
East Renton,WA (Seattle)
I know it isn't the greatest thing to do but who has done it and do you regret it now?

We are looking at houses and are trying to come up with the down payment asap and were wondering if anyone has done it for a down payment on a house and if it was worth it in the long run? I am 30 and have about 12k in mine right now. If I pull it then as soon as it lets me start dumping money back into it do you think it will be ok?
We need about $8400 for the DP and after taxes and the 10% ding for early withdrawal it should be enough and unless someone buys my truck pretty soon this is the next best (and fastest) way I can think of other than dealing meth and blow or selling my fine behind on the streets.
 
With house prices as low as they're going to get in this area, and low interest rates and an $8000 tax credit, I think that's a good choice. Historically, real estate always recovers, as does the market. When you make more money(and I know YOU will), you can make up contributions to your 401K/retirement plan. With a 30 year conventional loan, everything should time out about right. All this is just my opinion, of course. Good luck, JR.
 
Your lucky to still have money in your 401k. Mine got hit hard last year. If the 401k is your only option then I would do it. You could always try to pay it back early. I've borrowed from mine before but not for a house. Right now is a good time to purchase a home too. I think you can also pick up the rebate offered by our Government then you could put it back in your 401k. I hope everything works out for you and yours. Good luck!
 
you might not have to pay the early withdrawl penalty if its for a primary residence, just a thought and you might want to check it out.
 
As opposed to just taking money out of the 401k, consider taking a loan FROM it. You don't get hit with the taxes and interest penalties, AND, you pay it back, with interest, to yourself. I know a couple of people who have done this, and, while you lose the growth on the money you loan yourself, assuming there is growth, at least you get the benefit of buying the house, plus, you are young and have quite some time until retirement.

FF
 
360scamp said:
..... or selling my fine behind on the streets.
Click to expand...

Is that YOUR opinion or a previous customers opinion? :bootysha:

Your going to be in deep financially either way. Speak with the financial adviser who handles your 401K.
 
Nobody wants to hear this when I start, but...
Having money is about working your a** off, as many hours a week as you can, doing as many different jobs as you can. Self-discipline and personal responsibility. Once you start doing it, it snowballs. My wife and I don't owe anyone, anything. Every dollar we make is ours. Use a budget, and stick to it.
Robbing a 401K is foolish. When you're older, you'll miss that $12,000 and all the interest it will have gained. After you work to save a down payment, it's the best feeling you can have.
Here's where I learned a lot: http://beta.daveramsey.com/ I started before I heard of Dave, and adapted our plan some what with what I learned from him.
 
Scamp, Now your thinking so i'll try and help someone that wants to help themselves. The market is in your favor. Keep in mind always. The homes that have been foreclosed on are really not wanted by the company that holds em. They will deal big time. If this is your first home buy, that's a plus. There's also the tax credit. Another thought. You're paying rent. That money is out the door and you will never see it again. The other guy will. Why help him? All the interest on the loan is tax deductable at tax time. Money back to you. You can get that down you mentioned dropped way down lower than what you stated. It's a poker game but you may or may not be any good at it. This is even if you had to rob the 401K. You shouldn't. The owner of the house which maybe a bank will work with ya so their liability wont decrease in value. A house setting vacant is a liability not an assent. They should be glad to roll a home over to the other column on their sheet. Good luck and keep us posted. When you get the new home it's time to have "KIDS". I know you'll have to come up with a real close friend or a good neighbor. Believe me, they're around. Just jerkin with ya Scamp. I know you and Frankie are in the same boat. Your buddy......sometimes.
Small Block
 
360scamp said:
I know it isn't the greatest thing to do but who has done it and do you regret it now?

We are looking at houses and are trying to come up with the down payment asap and were wondering if anyone has done it for a down payment on a house and if it was worth it in the long run? I am 30 and have about 12k in mine right now. If I pull it then as soon as it lets me start dumping money back into it do you think it will be ok?
We need about $8400 for the DP and after taxes and the 10% ding for early withdrawal it should be enough and unless someone buys my truck pretty soon this is the next best (and fastest) way I can think of other than dealing meth and blow or selling my fine behind on the streets.
Click to expand...

Do it.....Its better than what I did in 1988 for my down payment...I sold my Plymouth Superbird. I still get sick every time I think about it!!!!!!!!!!!!!!
 
I agree with the idea of taking a loan against it. I just did so, as I had 2 cc that tried to do the rate / rape hike. I borrowed 4500, at 4.5% versus paying 21/23% to the credit cards. I was paying out 150 a month for these 2, and instead, i get a deduction fo 48 bucks every 2 weeks. so I am saving 50 bucks a month on the same amount of debt, but the 50 go can towards balance or elsewhere making futher pogress. You may lose out on some interest on 401 but the growth in equity on the house (if bought right) will far out weigh the interest on the 401K.
 
never Never NEVER TOUCH your retirement for ANYTHING! Especially a house! You'll never be able to recover the compounded interest.. even if your house is worth lots more years from now, it will be hard to make up for it... read up at clarkhoward.com on how to save up for a house.
 
Judge Mills said:
never Never NEVER TOUCH your retirement for ANYTHING! Especially a house! You'll never be able to recover the compounded interest.. even if your house is worth lots more years from now, it will be hard to make up for it... read up at clarkhoward.com on how to save up for a house.
Click to expand...

Agreed. Every financial expert I've seen interviewed on TV says NEVER Touch your 401K! If you borrow from your 401k and you lose your job, the balance of the loan will be due within 60 days. If it is not repaid in this timeframe (and you’re under 59 ½ years old), then you’ll pay another penalty of 10% on top of taxes. In the current economy and job market, it's best to leave it alone.
 
Not a good idea to pull from the 401K. Here's what I found:

http://beginnersinvest.about.com/od/401k/a/aa122104a_3.htm

All 401k hardship withdrawals are subject to taxes and the ten-percent penalty. This means that a $10,000 withdrawal can result in not only significantly less cash in your pocket (possibly as little as $6,500 or $7,500), but causes you to forgo forever the tax-deferred growth that could have been generated by those assets. 401k hardship withdrawal proceeds cannot be returned to the account once the disbursement has been made.

My Opinion: Taking a loan is a bad idea too. Why do in debt to go in debt?

What about a FHA loan? My sister just got one and it was pretty easy.

To take adavantage of the 8,000 first time buyer program through the government you have to be closed by November 30, 2009.
http://www.federalhousingtaxcredit.com/2009/index.html

Good Luck!
 
With all of the foreclosures and short sales out there now you should be able to buy with no money down and find low interest financing granted you have a good credit score. Even though you`re young enough to rebuild your retirement account it`s always good to have a "cushion" if things should really go south for you. I`d search for full financing first especially with the interest low and the governments first time buyer program in affect.
 
It's not a hardship withdrawl if it's for first time home buyers. FT Home buyer is only subject to the applicable income taxes, NO 10% PENALTY!

Is it smart... it depends. If there is no other way to get the cash and it's a deal breaker... well... I'm not a big fan of pulling funds from a 401K.

I also think that housing prices will continue to fall as there is a lot of inventory waiting in the wings that hasn't been released. If the fed regulators actually did their jobs and demand banks get the non-performing assets (houses) off the books, the prices would fall quick.

I'm currently in a situation where I pay about the same in rent as it would cost to buy a place, but, I'm standing pat. It's all about timing and getting something you like.

The 8k credit is currently keeping prices inflated a bit... See if they will use that as your down payment.
 
I friend got the 8K plus another 20 K grant (every year you live there knocks off 2K of it) She is going to get me some details.
 
Here's something to think about. We have an agency here that is called the West Virginia Housing Development Fund. They exist to obtain no down/low interest mortgages for first time home buyers. This was defined as someone who had not owned a home in the last 3 years. Credit score doesn't matter either, but I think there may be an income cap. Anyway, I qualified for $48000 with no down payment, no points, no closing costs, and 3% interest rate for 30 years. Could have gotten more money but that's all I needed. The deal fell through when the seller decided that since I came up with that much in less than a month, I could come up with more and almost doubled the price. I told him :thebirdm::thebirdm: and walked away. I bring this up since the company that I dealt with and sent all the paperwork to was based in Seattle. I might be able to find some of it and get you a name or website for contact if you want. There may also be an agency like this in your state as well.
 
The Feds have already drawn plans which are in the works to Federalize all of the 401K's.............They know SS is insolvent with the Baby Boomers, and have to make the move.

If you WAIT to use the money, you won't be ABLE to until you're old and gray, if it's left at all, and if you have faith that the US Dollar is not going to tank with all the trillions being pumped out as "funny money" from the Fed.

You'd be very wise to use it NOW, and especially for something as solid as a piece of real estate.......use as much as you can, and I wouldn't worry about the penalties.......they're far less than if we wait and watch it all disappear into the Federal coffers.

My 2 cents. (by the way, I teach economics and investments....it ain't no joke this time....the dollar is finished very soon, as will be your equity in a 401K).
 
crackedback said:
It's not a hardship withdrawl if it's for first time home buyers. FT Home buyer is only subject to the applicable income taxes, NO 10% PENALTY!
Click to expand...

As long as they don't loose or change jobs. If you lose your job, or change employers, you must pay back the loan in full within a short period, often 60 days. If you don’t, it is treated as a withdrawal and subjected to the same taxes and penalties. 401K accounts can usually be rolled over into 401K accounts at a new employer, or into an IRA, without triggering tax payments or penalties, but loans from a 401K cannot be rolled over.
 
The compound interest in the 401k will grow faster than the equity in your house will come retirement. I would not touch my 401k for a down payment on a house, especially because a house is not risk free (e.g., potential forclosure if there is a future loss of work, medical emergency, etc etc). A 401k is a risk free investment.
 
It ain't risk free according to PastorTom - I'm no conspiracy theorist, but we all know things are headed in a strange direction, globally. Even the slightest rumor of the govt possibly taking control (seizing) pensions, 401K's, etc. would cause a massive sell-off/withdrawal, etc. This won't happen. It will be very subtle, gradual and quite a ways off IMHO, but it will happen, along with control/regulation of many other aspects of our lives (for the good of the people, of course). I like tangibles myself, not quarterly statements - but I'm 100% in stocks in my Roth right now, so not practicing what I'm preaching! As Will Rogers once said, "don't wait to buy real estate, buy real estate....and wait". He was right, but timing is everything! I don't know that we'll ever see prices beaten up like this again ? I say make the loan (as little as possible) - I did at about the same age, paid myself back with interest while contributing faithfully.
 
Walt_Felix said:
As long as they don't loose or change jobs. If you lose your job, or change employers, you must pay back the loan in full within a short period, often 60 days. If you don’t, it is treated as a withdrawal and subjected to the same taxes and penalties. 401K accounts can usually be rolled over into 401K accounts at a new employer, or into an IRA, without triggering tax payments or penalties, but loans from a 401K cannot be rolled over.
Click to expand...

WRONG!!!

It's not a loan against the 401K... IT'S A WITHDRAWL for the home purchase. big, big, HUGE difference.

Lots of really bad info in this thread.

There isn't a penalty for first time homebuyers that withdraw up to 10K... I used to work as a CPA, so I might know just a smidge about the tax implications. Would you like me to pull the IRS code sections?

You have 120 days to use the funds for a home purchase. So it's important to be careful if using this approach.

http://www.themoneyalert.com/Sitstayrollover.html

"There are, however, exceptions to the rules of roll-overs for first time homebuyers. If you’re emptying out your former retirement fund and wish to use up to $10,000 towards the purchase of a first home, you’re allowed to do so. You are taxed on the withdrawal, but you do not have to pay the extra 10% early withdrawal fee. You also have up to 120 days to use the $10,000 on a first-time home purchase rather than the basic 60 days."

--------------

For those that think interest will outstrip inflation... good luck on that one.
 
You must log in or register to reply here.
-

Back
Top