401K vs Buying Home

bad move.

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Good move/Bad move?

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Horrible move. You'll pay taxes plus a 10% penalty for pulling it out early. You're looking at only about $7-8m here. If you have a problem saving that much, you have no business buying a house.

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You're looking at only about $7-8m here. If you have a problem saving that much, you have no business buying a house.

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I have enough in savings to put down the down payment. However, I hate to see my cash balance go to zero.

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I have enough in savings to put down the down payment. However, I hate to see my cash balance go to zero.

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wait a year and build up your savings, shite break in houses

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I have 13K in my 401K and I want to buy a house. I am thinking about pulling the money from my 401K for the down payment.

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Generally speaking that is not a good idea, although with only 13K involved the interest and penalties won't hurt that much.

And if you have the cash already, why bother?

It sounds like the real problem here is that your income/savings are just not enough to deal with a long-term mortgage. If that's the case, buying is pretty risky.

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.

If you are doing an FHA loan you can roll the 5% into a down payment with no penalty. Only reason I know this is I had a friend do it a few years ago and within 2 months he realized he messed up and I still make fun of him today for it

It sounds like the guy has enough money to put down on a house between his savings and 401K, and still have money left over. Everyone insists that he waits a year or two, however, who knows what the interest rates will be at that time. I believe that is why he is asking the question. I have no input other than I think you guys are too focused on the fact that he will have to pay a small penalty on his 401K for withdrawing early.

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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.

What is your current income and where are you buying?

The answer to these questions will impact the types of financing available to you.