Jillian Asks… I found the home of my dreams but am struggling to come up with enough money for a down payment. Would it be a good idea to use money from my retirement savings towards the down payment?

Tapping into your 401(K) for a loan is not necessarily a poor decision. It does depend on your overall financial situation – so what is right for you may not be for someone else.  Ask yourself the following: Do you have some emergency money – can you afford the new payment, can you afford the repayment of the 401k loan you would be making to yourself, can you still afford the lifestyle you want if you buy this new home ? In other words would this dream home make you house poor?

When it comes to 401(K) loans you can borrow up to $50,000 at any given time without being charged a tax or penalty, if allowed by your employer and if you have that much in your account, Typically you cannot borrow 100% of the funds you have invested.  You will typically have a term of up to 15 years to pay off the loan from your 401(K) when it is taken for a down payment on a home. As per the method of re-payment, your employer will usually begin deducting your monthly loan payment directly from your pay. Therefore, taking a loan out on your 401(K) is quite simple and an easy way to give your down payment that extra boost that it needs and you get to pay yourself back – with interest!

One thing you may want to consider when deciding whether or not you would like to follow through with this loan is your job stability. If you are to lose your job or choose a new career path, you will have just 60-90 days to pay off the loan. If you are unable to pay off the loan, it will be considered a distribution and you will incur taxes.

The best advice I can give is to take some time to weigh your options, answer the questions above honestly and speak to a financial advisor to learn all the details of what you would be getting yourself into….  So you can determine if it is a good decision for YOU!

Meet Cheryl!

About Cheryl

As a successful business owner and community leader, Cheryl Braunschweiger is known and respected for getting things done with a degree of skill and enthusiasm that bring out the best in those around her - colleagues, clients and friends. The name of her business, ALMC Mortgage, reflects Cheryl's philosophy and personality. She says it stands for All Loans Must Close –a reflection of her determination to do whatever it takes to serve her clients. Cheryl has been in the mortgage lending business for 20 years. Read More About Cheryl
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