Using your 401k to buy a house | TigerDroppings.com

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camweb68
LSU Fan
Cecilia
Member since Oct 2008
316 posts

Using your 401k to buy a house


Backstory. I have two acres of paid off land that I would like to build on. The appraised value of the land will cover my 20% down on the loan to avoid pmi. The house will cost roughly 180 k to turn key but I plan on doing some of the finishing and interior work myself to hopefully save 30 k bringing the 180k to 150 k and I was thinking of using 40k from my 401 k to bring my total loan value down to around 100 k.

I know that the penalties will be stupid and I also have to suspend my 401 k for 6 months.
I am 34 and retiring seems like a pipe dream and I am also banking that there will be another stock market crash coming in the next few years anyway.

Any advice out there tiger nation.







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kage
Auburn Fan
ATL
Member since Feb 2010
3343 posts

re: Using your 401k to buy a house


No. The difference in 40k right now with the interest rate you can most likely get will not be worth it.

You definitely won't be able to retire if you try things like this.






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Tigerpaw123
USA Fan
P'ville
Member since Mar 2007
9073 posts
 Online 

re: Using your 401k to buy a house


The difference between 110k and150k 30 yr loan is about $200/ month, I would not clean out or even dent my 401k for such little difference


This post was edited on 12/27 at 8:17 pm


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guttata
LSU Fan
prairieville
Member since Feb 2006
20006 posts

re: Using your 401k to buy a house


Why not just wait till you have $40k saved up?





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camweb68
LSU Fan
Cecilia
Member since Oct 2008
316 posts

re: Using your 401k to buy a house


I guess I am looking at paying off the house as quickly as I can and then start saving up again for retirement. Is this the wrong way to think ? I just see that the home is the biggest expense in your life. And also I would think that that 40k would help reduce a lot of compounding interest along the way ton paying off your loan.


This post was edited on 12/27 at 8:29 pm


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rocketc
Auburn Fan
Member since Oct 2013
265 posts

re: Using your 401k to buy a house


Don't do it. Please don't.







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I Love Bama
Alabama Fan
Alabama
Member since Nov 2007
31888 posts

re: Using your 401k to buy a house


Terrible idea.

Money is cheap. I'm a dave ramsey beater too but paying off interest rates that are this low makes no sense.

Do not. I repeat. DO NOT TOUCH YOUR 401K.






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TheHiddenFlask
Clemson Fan
The Welsh red light district
Member since Jul 2008
16770 posts

re: Using your 401k to buy a house


Awful idea.

It would cost you a ton.






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camweb68
LSU Fan
Cecilia
Member since Oct 2008
316 posts

re: Using your 401k to buy a house


Thanks for the help guys. When I do the math and look at the penalties it's crazy to think that the 40 k may cost me 40 k to use it in the long run. I look at it as money that I wouldn't see or use for 30 years but the interest over that time would be helpful when I hang up my work boots.
There are a few guys at work who did use there 401k to buy and they are both hurting financially today. I look at it as the ace in the hole but I guess I should just forget about using it now to have later.






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CajunTiger92
LSU Fan
Member since Dec 2007
1025 posts

re: Using your 401k to buy a house


This is correct, forget about using the 401k money until you are 59.5 years old. Keeping the money there and consistent contributions should be a priority. Long term growth will work its magic.





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sugar71
UCLA Fan
baton rouge
Member since Jun 2012
1507 posts

re: Using your 401k to buy a house


quote:

This is correct, forget about using the 401k money until you are 59.5 years old. Keeping the money there and consistent contributions should be a priority. Long term growth will work its magic.


So if I retire at 59.5 (with 800k in 401k) & let's say I owe 80k on my home

Do I pay off my home at 80k with a cash withdrawal or keep making payments?







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sugar71
UCLA Fan
baton rouge
Member since Jun 2012
1507 posts

re: Using your 401k to buy a house


Bump to ask a similar question.

If I don't own my home at 59.5 with 800k in 401k can I withdraw & build a modest home of $100k or pay off $100k mortgage?






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CajunTiger92
LSU Fan
Member since Dec 2007
1025 posts

re: Using your 401k to buy a house


You are better off after 59.5 because you aren't getting an immediate 10% haircut. That said, paying off the mortgage or getting a new one will depend on how much interest you are paying versus what you can get investing the money.

Keep in mind that the bulk of the interest on a mortage is paid at the beginning. When you are toward the end of the mortgage, very little interest savings are realized by paying it off. It is a good feeling though to write a check and be done with it.

When using a mortgage to buy a home, you are still paying rent. Only you are renting money. And the rent is tax deductable.







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sugar71
UCLA Fan
baton rouge
Member since Jun 2012
1507 posts

re: Using your 401k to buy a house


quote:

You are better off after 59.5 because you aren't getting an immediate 10% haircut. That said, paying off the mortgage or getting a new one will depend on how much interest you are paying versus what you can get investing the money.

Keep in mind that the bulk of the interest on a mortage is paid at the beginning. When you are toward the end of the mortgage, very little interest savings are realized by paying it off. It is a good feeling though to write a check and be done with it.

When using a mortgage to buy a home, you are still paying rent. Only you are renting money. And the rent is tax deductable.


Thanks for the response . In other words there is no simple answer ,but not out of the question to pay off mortgage from 401k after 59.5 as it would be before 59.5?


I am a person who absolutely abhors debt(1st mortgage closing made me nauseous & had to be reassured /consoled by my girlfriend at the time).. I hate debt.

So the peace of mind being 'mortgage free' would be a good thing for me ,but may not necessarily be worth it just to free up $7-800/ month.











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Overbrook
Tulane Fan
Member since May 2013
1529 posts

re: Using your 401k to buy a house


A mortgage is cheaper than a 401K loan, so no reason to do it.
That said, 401K loans are under-rated.






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