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Message
Borrowing from 401k for home loan
Posted on 5/29/16 at 12:50 pm
Posted on 5/29/16 at 12:50 pm
I put in an offer for my first home today. For the down payment I'm borrowing from my 401k (technically a Roth 401k where I pay taxes up front).
How long does it usually take to pull the money out, any common mistakes I should be aware of?
How long does it usually take to pull the money out, any common mistakes I should be aware of?
This post was edited on 5/29/16 at 12:51 pm
8
Posted on 5/29/16 at 1:48 pm to jbond
quote:
any common mistakes I should be aware of?
Borrowing from your 401k.
Posted on 5/29/16 at 2:09 pm to iknowmorethanyou
I'm 24 so I figured I started putting away earlier than most and I won't see gains in my portfolio as fast as Atlanta home prices are rising
This post was edited on 5/29/16 at 2:15 pm
Posted on 5/29/16 at 2:18 pm to jbond
quote:
I won't see gains in my portfolio as fast as Atlanta home prices are rising
No guarantee here. People thought the same 10 years ago and are still in a hole.
Posted on 5/29/16 at 2:25 pm to jbond
Another thing to consider is the rules regarding payback in the event of job loss/leave. In many cases, you are obligated to pay the loan in full if you leave your job.
If you're borrowing a significant amount, this could be important.
If you're borrowing a significant amount, this could be important.
Posted on 5/29/16 at 2:30 pm to Oenophile Brah
I'm putting 5% down (total of $16,750), 11K of it is from the 401k. I've been putting in 10% but to cash up again going to bring the contribution down to 6% (the matching amount).
This post was edited on 5/29/16 at 2:31 pm
Posted on 5/29/16 at 2:33 pm to jbond
Also in Atlanta home prices are at pre-recession level and expected to rise 5.9% next year. I really want to live in the city, but fear being priced out soon if I want a house.
Posted on 5/29/16 at 2:34 pm to Oenophile Brah
Do regular contributions count as paying back the loan or do I have to make separate payments?
Posted on 5/29/16 at 2:41 pm to jbond
Don't quote me, but I believe as long as you're working you make regular contributions that go to paying off the loan. In the event of job loss, the loan usually has a call feature that requires immediate pay back. I'm guessing you could pay out of your 401k, but that would require penalty and a tax event.
Read up on this feature as I don't think they're all the same, but it can be important.
Read up on this feature as I don't think they're all the same, but it can be important.
Posted on 5/29/16 at 3:13 pm to Oenophile Brah
Thanks for the advice!
Posted on 5/29/16 at 3:49 pm to jbond
Horrible idea.
But it sounds like you've already gone through with it, so nothing really to offer other than be aware: you will probably be responsible for paying back the lump sum should you leave jobs/get laid off.
Never a smart decision IMO.
But it sounds like you've already gone through with it, so nothing really to offer other than be aware: you will probably be responsible for paying back the lump sum should you leave jobs/get laid off.
Never a smart decision IMO.
Posted on 5/29/16 at 5:22 pm to TigerDeBaiter
Doesn't the interest go straight back to you? Also what interest rate are you borrowing at?
I think you are normally limited to borrowing only 50% of the balance.
I think you are normally limited to borrowing only 50% of the balance.
Posted on 5/29/16 at 10:36 pm to iknowmorethanyou
quote:
Borrowing from your 401k.
Oh now come on.
Borrowing irresponsibly from your 401k is never good, but it isn't like it is always a bad idea.
Even if you don't consider the home as an investment, right now the "interest" I am paying back to myself is at an higher return than my overall 401k.
Which seems to be a common problem based off of the other return thread.
Posted on 5/29/16 at 10:37 pm to TigerDeBaiter
quote:
But it sounds like you've already gone through with it, so nothing really to offer other than be aware: you will probably be responsible for paying back the lump sum should you leave jobs/get laid off.
This is the biggest catch of a 401k loan IMO.
Posted on 5/29/16 at 10:39 pm to jbond
quote:
Do regular contributions count as paying back the loan or do I have to make separate payments?
That is a very specific question that we can't answer.
My 401k loan is in addition to the contribution.
And if you are retarding contributions for the loan (as would be the case if the repayment was included), the 401k loan becomes a bad idea.
Posted on 5/30/16 at 7:46 am to LSU1018
quote:
Doesn't the interest go straight back to you?
Yes. And? Its funny that people get lured in to thinking this is somehow benefiting them. You're not gaining anything "better than the market". You're just saving more, which you could be doing already.
quote:
think you are normally limited to borrowing only 50% of the balance.
Yes, but if one can't pony up 5% for a down payment, this becomes a huge risk if one were to lose their job. Again, a bad decision like this usually leads to a long term financial train wreck.
Posted on 5/30/16 at 12:27 pm to jbond
You couldn't even get a personal LOC for the 5% DP? Wait, nevermind because all you can afford OOP is roughly 5k, right? Looks like you have no business buying if you will have PMI plus having to borrow from a 401k that small of an amount to begin with. Good luck!
Posted on 5/30/16 at 12:28 pm to TigerDeBaiter
quote:
Yes, but if one can't pony up 5% for a down payment, this becomes a huge risk if one were to lose their job. Again, a bad decision like this usually leads to a long term financial train wreck.
bingo
Posted on 5/30/16 at 2:00 pm to Fat Bastard
As far as the tax implication goes, can't you just not pay them? That's what most democrat politicians do 
Posted on 5/30/16 at 2:40 pm to jbond
quote:I wouldn't buy a $335,000 house at 24 unless I was making ridiculous money or I was absolutely positive I would be in Atlanta long-term.
any common mistakes I should be aware of?
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