Need financial advice 401k, IRA, home purchase)

[Rage187]

We are building a new home and selling our current residence.

We have about 80k in our 401ks. I need to borrow or withdraw up to 15k for the down payment.

I already have one general 401k loan for 9k. Our current home has about 30k in equity, although we should end up with 20k when everything is said in done. Even though we will get that money when this one sells, I'd rather have the down payment in the bank, as our contract on the new home is not continent on selling our current.

How can I access the funds without taking a huge penalty? I thought I could roll over the money into an IRA and be able to take the once in a lifetime, 10k withdrawal for the new home but I think I can't because we have owned a home in the last two years.

I thought about paying off the current loan then being able to access the funds through another loan.

Stuck. We have 800+ credit scores, so I guess I could do a HELOC on the old home.

 

[Jumpem]

You should be able to get a mortgage without a down payment.

 

[Blackjack200]

You generally can't access the money in your 401(k) except through a loan. The assets are actually custody of the plan, held FBO you.

I thought about paying off the current loan then being able to access the funds through another loan.

That might be your best bet. Who is your 401(k) provider? Fidelity? Prudential? You should be able to call the 800 number on the statement and just ask.

 

[Rage187]

You generally can't access the money in your 401(k) except through a loan. The assets are actually custody of the plan, held FBO you.



That might be your best bet. Who is your 401(k) provider? Fidelity? Prudential? You should be able to call the 800 number on the statement and just ask.

Merrill Lynch. Loan plan allows me to have 1 loan out at a time. My wife hasn't borrowed against her funds yet, so that is $7500 I can get access to in a week or so.

 

[Rage187]

You should be able to get a mortgage without a down payment.

We can. But putting 5% down with a 760+ credit score grants access to a good, conventional mortgage plan.

 

[JEDIYoda]

I would liqidate and purchase gold bars!!

 

[Rage187]

I would liqidate and purchase gold bars!!

I was thinking forever stamps!

 

[rcpratt]

Why not just stop spending money that you don't have.

 

[Rage187]

Why not just stop spending money that you don't have.

Er, I have the money. This isn't credit card debt. That's why we have 401ks, pensions and stocks. Why shouldn't i use the funds i have saved to purchase a home?

 

[Jumpem]

Er, I have the money. This isn't credit card debt. That's why we have 401ks, pensions and stocks. Why shouldn't i use the funds i have saved to purchase a home?

Well those funds are generally for retirement, not short term spending.

 

[Rage187]

Well those funds are generally for retirement, not short term spending.

30 year mortgage is not short term spending.

Also, home prices have gone up here 17% in the last 12 months. If we don't buy now, we won't get what we need where we want. It also cuts my commute from 2.5 hours to 1. And cuts 60+ miles for my wife and I.

 

[Exterous]

30 year mortgage is not short term spending.

Are you going to spend 30 years paying that 401k loan/withdrawl back? If not your response doesn't really make sense as the short term spending would be the down[payment not the entire mortgage

Also, home prices have gone up here 17% in the last 12 months. If we don't buy now, we won't get what we need where we want. It also cuts my commute from 2.5 hours to 1. And cuts 60+ miles for my wife and I.

Its been my experience that most Americans are quite incapable of separating want from need in terms of a house purchase

If you are in the 25% tax bracket you will likely pay ~37% in taxes (its taxed as income) and fees on a withdrawal which more than cancels out the 17% property value gain. You also likely lose out on $2,200 in gains if you take 5 years to pay it back even if you pay yourself the interest rates

How old are you, how much money in retirement savings do you have and how long would it take you to come up with the $15k in downpayment through saving?

 

[shadow9d9]

First question I have is how old you are... Also, why can't you just rent closer to work?

 

[rcpratt]

Er, I have the money. This isn't credit card debt. That's why we have 401ks, pensions and stocks. Why shouldn't i use the funds i have saved to purchase a home?

The purpose of your 401(k) is to fund your eventual retirement, not a down-payment for a house when you're 30. Even despite the additional 10% penalty, designed to protect you from yourself, you can't resist.

 

[alkemyst]

Merrill Lynch. Loan plan allows me to have 1 loan out at a time. My wife hasn't borrowed against her funds yet, so that is $7500 I can get access to in a week or so.

There are usually exceptions for first time home purchases...depending on how you did your first loan the other spouse may qualify for a penalty free early withdrawl.

You shouldn't have to put much down with a real credit score in the 800 range and not buying a Jumbo property.

 

[onza]

lol @ wanting to borrow from 401k.

Hope you know what the stupid interest rates are ....

 

[alkemyst]

lol @ wanting to borrow from 401k.

Hope you know what the stupid interest rates are ....

If you take a loan out of a 401k, it's not the same as an early withdrawl. The interest rates are very low and the actual interest is paid back to your fund.

It makes a lot of sense if you have higher rate credit cards that were unexpected, but not much sense to just take money out to blow on something not needed.

 

[Vdubchaos]

Never borrow against 401k

If you have great credit what's stopping you from taking one of those 18 month 0% balance transfer loans from your Credit account? I believe Citi offers best rates right now.

 

[NoCreativity]

I'm not sure mortgage companies will like seeing that you took out another loan (equity loan idea) to pay the down payment on your new mortgage.

I put down a small deposit ($1000) to have our new house built. The mortgage company came back to us three times for more information before they would approve us. First they wanted a copy of the check, then a copy of the canceled check, and finally they wanted a copy of the bank statement showing the money came from our account. All over a fraction of a percent of the cost of the house. All that scrutiny for two people with 800+ credit and more than enough for a 20% down payment.

I don't have a good solution for you but my guess is that the equity loan idea won't work out too well.

 

[JoeBleed]

1. Put house up for sale
2. Find place to rent close to work that doesn't require a long lease agreement and is small and cheap.
3. look for a house even closer to work than an hour.
4. take a set amount of money out of each paycheck and set it aside in a separate account just for house buying and don't take any of it out until you're ready to buy a house.
5. take money from sold house and keep it in the separate account.
Edit:
6. buy house and, if you can, pay for inspections of of your own pocket and not the money set aside for buying the house.

 

[Exterous]

I'm not sure mortgage companies will like seeing that you took out another loan (equity loan idea) to pay the down payment on your new mortgage.

I put down a small deposit ($1000) to have our new house built. The mortgage company came back to us three times for more information before they would approve us. First they wanted a copy of the check, then a copy of the canceled check, and finally they wanted a copy of the bank statement showing the money came from our account. All over a fraction of a percent of the cost of the house. All that scrutiny for two people with 800+ credit and more than enough for a 20% down payment.

I don't have a good solution for you but my guess is that the equity loan idea won't work out too well.

Thats a really good point. I had forgotten that aspect of our house purchase but a bit before closing I deposited $5,000 into our checking account from the sale of a car. I got a call from the bank wanting to know all kinds of information about the sudden influx of cash and had to sign an affidavit stating that it was not a loan for the house

The interest rates are very low

Thats a plus and a minus. That interest rate likely won't cover the lost gains due to do market appreciation.

 

[Genx87]

Dont take out money from your 401K or any investment income for that matter. You will lose a lot of future value.

If you dont have a down payment so be it. Live within your means. Or plan better to purchase the home.

 

[vi edit]

Have you gone through the pre-approval process for the next place yet? If you haven't got a hard offer on your current one you may find that securing financing on the future one is quite difficult. You may have to be approved on the mortgage burden of both places.

 

[Mermaidman]

(I know this doesn't answer your question, but)
Do you own a "fancy" car that you can sell for the house down payment? Drive an old, but reliable, car for the time being. Seems like the easiest way to get the money. Of course, if you have a car loan, then it doesn't matter.

 

[jaedaliu]

everyone, stop with the "don't touch the 401k" BS. You guys don't understand that it's standard to borrow from a 401k to buy a house.

taking a loan from a 401k is perfectly legit and reasonable. Yes, it is a loan, yes, you will pay interest. but you are paying interest to YOURSELF. The system is built so that the interest paid on the loan should be somewhat similar to the value accrued if the 401k was not touched. There are no penalties as long as you stick with the repayment plan (which Rage187 will do.)

Blackjack's answer is correct. Call your 401k servicers and figure out how to proceed.

And to taking out a 0% balance transfer, there's typically a ?3%? fee associated so he'll lose money.