Using 401k / IRA for downpayment

Probably not the worst idea, but it seems if you need to borrow/take from a retirement account it's probably not the right time for you to purchase a house.

Well it's 10 percent PLUS taxes. Does your plan allow loans?

I borrowed money from my 401k for down payment and don't regret it. Got into the house and school district we wanted for our kids when it was still relatively affordable. Prices have since shot up to the point where we probably wouldn't buy here now.

The loan was penalty/tax free and the "interest" charge is actually just paid back to myself into the 401k account. I missed out on 3 years of growth on the money that was taken out but the financial upside for getting in the house when we did more than made up for that. I also avoided PMI and got a lower interest rate than I would have had I just used my available cash for a more non-conventional loan.

It's risky to "go backwards" in your retirement account and I don't think I would have done it if there was any significant penalty, tax, or interest consequence. For me it was essentially an interest free loan that was paid back to myself in 3 years. It worked out for me and in the right circumstances I don't think it is a bad idea.

Apologies but I have a slight hijack here.

I am having issues with my 401K. I have been contributing 9% with a 3% Company match for a several years. I don't make a ton of money but it feels like my 401K balance has been stagnant. I am up 5% in 2017 and know it is growing but I feel stuck. Does/Has this happened to any of yall? Total around $47K in there and it feels like I have been there for a year. Should I just not look at it or look every 6-12 months?

1. You shouldn't look at it everyday
2. The market has been very good the past few years, so you definitely should have seen a lot more movement than what you're saying.
3. So that begs the question, what are you invested in?

Maybe this will help you determine the costs of the loan.

LINK

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ou should also keep in mind that you are withdrawing tax free money in a 401k loan and paying it back with after tax money. Assuming you pay 20% taxes you would have to earn $12,500.00 to pay back a $10,000 loan (actually more due to interest but I'm being lazy). This to me is the biggest negative of a 401k loan that I also never see discussed.

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I don't really see that as a negative. Any loan you would have taken out is paid back with after tax dollars. If you simply dipped into your savings you'd have to replace those savings with after tax dollars. Obviously, the 401k loan repayments aren't tax deductible (you already got that advantageous tax treatment once on this money, you aren't going to get it again). I just don't see this point as a negative to 401k loans versus any other loan or depletion of savings, etc.

I still see the real disadvantage being the loss of potential gains while the money is out and not invested.

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First time home buyers don't have a firm grasp on the costs associated with home ownership.

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Personally, this is not the case. I have ZERO debt, am extremely smart with my money and have a strong budget. For the past 10 years, my father-in-law has been saying he was going to give us money for a downpayment on the house, just like he did for my sister-in-law (twice I might add). So, instead of saving for a down payment, we put the money into retirement. As of 3 weeks ago, he has decided to put that money into a college fund for our daughter rather than a down payment which basically screwed us. I am fortunate enough that my father is giving me the money but he wants me to have skin in the game.

I can appreciate that your statement is a very generalized statement and not true for 100% of the first time home buyers.

This may be a good decision for you, but I personally feel like you should never touch your retirement. Heck, I'd rather you delay putting any more into retirement accounts for 1 year and save up for a down payment that way. The principle is sort of the same, but its too easy to access your retirement and deplete it.

Will you repay and will this work out well for you, most likely yes. But what if the house is a burden, bad financial move, and you don't repay your retirement? All of that can and does happen regularly.

No.