re: 401K vs Buying Home

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It's not really a bad move if you're taking the money out as a loan, you'll pay it back with interest - but only 13k shouldn't be much of a payment. You typically can only take out 50% of your funds.

You don't have to pay taxes if it's a loan - it's way better than a withdrawal, which I would consider a bad idea. I've taken out a loan from my 401k before and would do it again if I absolutely needed to. I usually select the longest loan term and then pay it back as soon as I have the funds available.

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But in this scenario, if he's just going to take his cash balance down to $0 to buy a house, I'd think maybe he should just check into the 401K loan scenario with his employer's plan. See how long it takes the funds to come through, what terms are on the loan, etc. If he has an emergency, he can put the emergency bills on a credit card and start the ball rolling to get a 401K loan to receive the cash disbursement before the credit card bill is due.

But I wouldn't take the loan unless some emergency happens. That way, if no emergency happens and he can build his cash back up on his own great. If an emergency happens in 6 months, hopefully he'd have built the 401K balance up some more and can get a bigger loan if necessary (also he'd have had some time to build up his savings some).

I'd say don't lock yourself into the loan unless it gets down to it and you absolutely have to.

Also should consider how stable his employment will be on whether or not to take a loan out in the first place.