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Message
Would you dip into your IRA to purchase your dream home?
Posted on 7/1/21 at 12:47 pm
Posted on 7/1/21 at 12:47 pm
I'll try to make this as succinct as possible. Wife and I have about $210k in our rollover IRA accounts. $20k in Roth, and about $30k in our current employer's retirement plans. We are about to have our 4th child, and currently live in a 1600 sq ft home, so things are pretty tight as they are with 5 of us.
We both net roughly $7500/month after taxes/health premiums/retirement contributions, etc. Have 1 child in private school at about $700/month, and our 2 boys in daycare at $1200/month. We have 1 vehicle note at $550/month. No credit card debt. Still paying about $550/month on student loans, which should be paid off in the next 2 years. Our current mortgage is $1250/month.
We found a lot 10 minutes away from our current home, and the plans of the house checks all of our boxes (empty, purchased lot to the left of it with no plans on building as it is used as a vegetable garden for the adjacent house, green space to the right, and pond behind. The lot is in a cul-de-sac). We looked at multiple homes but never pulled the trigger on any of them, because of one thing or another. The builder came back with us with a quote of $502k for a 2480 sq ft. home. Our initial budget was around $430-450k. My question...is it foolish to dip into our IRA to purchase our forever home? We have about $90k in equity on our current house, and another $60k in a brokerage account. Even with a $150k down payment, we are looking at roughly $1800/month house note at 2.5%. I was thinking about taking out $10k/year out of our IRA for 5 years to make up the difference with what we currently pay for our mortgage. Or should I lower my retirement contributions from 18% to 6% to come up with the extra money? We are both turning 36 this year, by the way. Thoughts?
We both net roughly $7500/month after taxes/health premiums/retirement contributions, etc. Have 1 child in private school at about $700/month, and our 2 boys in daycare at $1200/month. We have 1 vehicle note at $550/month. No credit card debt. Still paying about $550/month on student loans, which should be paid off in the next 2 years. Our current mortgage is $1250/month.
We found a lot 10 minutes away from our current home, and the plans of the house checks all of our boxes (empty, purchased lot to the left of it with no plans on building as it is used as a vegetable garden for the adjacent house, green space to the right, and pond behind. The lot is in a cul-de-sac). We looked at multiple homes but never pulled the trigger on any of them, because of one thing or another. The builder came back with us with a quote of $502k for a 2480 sq ft. home. Our initial budget was around $430-450k. My question...is it foolish to dip into our IRA to purchase our forever home? We have about $90k in equity on our current house, and another $60k in a brokerage account. Even with a $150k down payment, we are looking at roughly $1800/month house note at 2.5%. I was thinking about taking out $10k/year out of our IRA for 5 years to make up the difference with what we currently pay for our mortgage. Or should I lower my retirement contributions from 18% to 6% to come up with the extra money? We are both turning 36 this year, by the way. Thoughts?
This post was edited on 7/1/21 at 1:45 pm
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Posted on 7/1/21 at 12:50 pm to Crescent Connection
Absolutely would not dip into retirement to do this, you just need to wait to be in a better financial position. Also would not jump the gun on building right now, too expensive. Getting rid of the car note/student loans should help get you closer to better cash flow monthly, in the mean time to that, building that house might become a little bit cheaper too.
Do not take money out the rollover IRAs over time and pay 10% penalties on top of getting taxed on that. That's just a really bad plan and you'll get killed on it to try and afford something you really cant.
Do not take money out the rollover IRAs over time and pay 10% penalties on top of getting taxed on that. That's just a really bad plan and you'll get killed on it to try and afford something you really cant.
This post was edited on 7/1/21 at 12:56 pm
Posted on 7/1/21 at 12:51 pm to Crescent Connection
No, if you have to you can’t afford the house.
Posted on 7/1/21 at 12:53 pm to Crescent Connection
Buy the land and start paying on it for now. Build a house on it in a few years when your student loans are paid off or the housing market settles down a little.
Posted on 7/1/21 at 12:56 pm to Displaced
quote:
Buy the land and start paying on it for now. Build a house on it in a few years when your student loans are paid off or the housing market settles down a little.
Posted on 7/1/21 at 1:02 pm to Crescent Connection
I wouldn't borrow against my future like that, personally.
If I mathed this correctly, you currently have over $3250 per month left over after your housing/school/debts are covered. How much of that leftover money is being saved or are you spending it all? Are your other kids going to attend private school as well? Are you planning on saving for your kids' college? Are you adequately preparing for retirement? Do you have an appropriate emergency fund?
Your post leads me to believe your spending may already be tight (correct me if I'm wrong). If true, you could put yourself in a bind down the road if you are over-buying a house.
If I mathed this correctly, you currently have over $3250 per month left over after your housing/school/debts are covered. How much of that leftover money is being saved or are you spending it all? Are your other kids going to attend private school as well? Are you planning on saving for your kids' college? Are you adequately preparing for retirement? Do you have an appropriate emergency fund?
Your post leads me to believe your spending may already be tight (correct me if I'm wrong). If true, you could put yourself in a bind down the road if you are over-buying a house.
Posted on 7/1/21 at 1:02 pm to cgrand
Would be a terrible decision given current market decisions.
And there is ALWAYS another house out there.
And there is ALWAYS another house out there.
Posted on 7/1/21 at 1:06 pm to Crescent Connection
quote:
Would you dip into your IRA to purchase your dream hom
No..
One thing you will learn over time, there is no such thing as a dream home. You always to change things. As you get older your needs will change, and there will be another decision.
Posted on 7/1/21 at 1:09 pm to Crescent Connection
And I'll say this - you're doing well on retirement with $260k in there now at 36 and contributing 18% still (although not sure if that's just you, or between you and your wife). Dont borrow from that to live in the now because you think you need it right now. $260k could easily become a million by the time you're 50, and that's without even contributing another dollar, which obviously you still want to be contributing.
Just focus on getting rid of your monthly debt obligations between car loan and student loan and you'll feel an awful lot easier to breathe, and probably afford a larger home. Heck, with $60k in a brokerage account, could you almost pay off both right now? Maybe dont pay off the car loan if it's low interest, but id get rid of those student loans ASAP if they are of the higher variety - say 6+%. I wouldnt be bagholding those student loans if they're higher interest rate while you have $60k sitting in a brokerage account ready to pay them off easily, interest going to be kicking back on those loans soon.
Just focus on getting rid of your monthly debt obligations between car loan and student loan and you'll feel an awful lot easier to breathe, and probably afford a larger home. Heck, with $60k in a brokerage account, could you almost pay off both right now? Maybe dont pay off the car loan if it's low interest, but id get rid of those student loans ASAP if they are of the higher variety - say 6+%. I wouldnt be bagholding those student loans if they're higher interest rate while you have $60k sitting in a brokerage account ready to pay them off easily, interest going to be kicking back on those loans soon.
This post was edited on 7/1/21 at 1:14 pm
Posted on 7/1/21 at 1:10 pm to Crescent Connection
Your going to eventually have 4 kids in private school and want to spend $500k on a house?
All with student loans that are not paid off yet?
All with student loans that are not paid off yet?
This post was edited on 7/1/21 at 1:12 pm
Posted on 7/1/21 at 1:16 pm to Crescent Connection
quote:
Would you dip into your IRA to purchase your dream home?
No.
Posted on 7/1/21 at 1:44 pm to FinleyStreet
quote:
you currently have over $3250 per month left over after your housing/school/debts are covered. How much of that leftover money is being saved or are you spending it all? Are your other kids going to attend private school as well? Are you planning on saving for your kids' college
Roughly $1000/month on groceries and household items.
$200/month utilities
$100/month internet/streaming services
$170/month cellular plan
$180/month gas
$150/month auto insurance
That leaves with roughly $1300-$1400/month for going out to eat/miscellaneous costs/etc.
Emergency fund is at $12k.
That 18% 403b contribution is for me. Between the wife and I, we contribute roughly $23/k year to retirement plans.
Contribute roughly $2500/year to 529 for each child.
I appreciate the frank, honest feedbacks. That’s what I needed. Just don’t know how much longer we can tolerate living in a small space, with another addition on the way.
Posted on 7/1/21 at 1:55 pm to Crescent Connection
quote:
I was thinking about taking out $10k/year out of our IRA for 5 years to make up the difference with what we currently pay for our mortgage. Or should I lower my retirement contributions from 18% to 6% to come up with the extra money? We are both turning 36 this year, by the way. Thoughts?
I wouldn’t draw down on retirement assets every single year for 5 years.
If you and your wife want to take out money to help with the downpayment and you stay within the penalty exceptions, I think it’s reasonable.
That being said, it doesn’t sound like you can afford this house currently. You’re going to wife out your savings (brokerage) and the extra $550/mth of house note is obviously giving you pause for concern. That’s cutting things way too tight IMO.
If you have to cut back on contributions to make it work you should fully understand what you’re sacrificing in the future for this home. If you still feel it’s worth it, that’s fine, but make an educated decision.
Posted on 7/1/21 at 1:57 pm to slackster
quote:
You’re going to wife out your savings (brokerage)
I meant wipe out, not wife out, but I think it still fits for many.
Posted on 7/1/21 at 2:28 pm to thunderbird1100
quote:
you're doing well on retirement with $260k in there now at 36 and contributing 18% still (although not sure if that's just you, or between you and your wife). Dont borrow from that to live in the now because you think you need it right now. $260k could easily become a million by the time you're 50
Posted on 7/1/21 at 2:40 pm to Crescent Connection
Not in a million years. If you have to rob from your retirement you can't afford the house.
Plus, everything is way overpriced. Give it some time.
Plus, everything is way overpriced. Give it some time.
This post was edited on 7/1/21 at 3:06 pm
Posted on 7/1/21 at 2:51 pm to Crescent Connection
One more big landmine is the builder completing the construction. There are some horror stories out there. Even a fairly smooth new construction will often have cost and time overruns.
Posted on 7/1/21 at 2:57 pm to Crescent Connection
Another no from me. Only exception is to buy condoms (joshing and congratulations on 4th child!).
Won't repeat other posters' good advice (eg, mortgaging your retirement peace of mind for home today; living today > tomorrow; wealth-building cancer early-withdrawal penalties, buying at high end of market/wood prices, etc.). Want to share some intangibles of wealth that I dreamed off coming out of college but am now realizing.
Just yesterday, I received Vanguard Fin Advisor report that confirming that we have means to retire at 55 with 99+% confidence. Not too far away for me. This includes significant "room for error".
Certainly not meant as a "brag" but rather to share that I cannot tell you how good this feels (ie, peace of mind)! May or may not pull 55yo retirement trigger, but having the option is extremely valuable to us. Wealth-building intangibles, such as control of your time may not seem valuable right now in a cramped 1600 sq ft house.
The wisdom someone shared with me that eventually sunk in is you can always get more $ and stuff, but you cannot get more time. It is the most precious resource!
My 2 cents, get those student loans paid off and then go get you a nice house (b/c intangibles of space w/4 kiddos is valuable, too). But, dream homes today may be financial nightmares tomorrow.
Good luck!
Won't repeat other posters' good advice (eg, mortgaging your retirement peace of mind for home today; living today > tomorrow; wealth-building cancer early-withdrawal penalties, buying at high end of market/wood prices, etc.). Want to share some intangibles of wealth that I dreamed off coming out of college but am now realizing.
Just yesterday, I received Vanguard Fin Advisor report that confirming that we have means to retire at 55 with 99+% confidence. Not too far away for me. This includes significant "room for error".
Certainly not meant as a "brag" but rather to share that I cannot tell you how good this feels (ie, peace of mind)! May or may not pull 55yo retirement trigger, but having the option is extremely valuable to us. Wealth-building intangibles, such as control of your time may not seem valuable right now in a cramped 1600 sq ft house.
The wisdom someone shared with me that eventually sunk in is you can always get more $ and stuff, but you cannot get more time. It is the most precious resource!
My 2 cents, get those student loans paid off and then go get you a nice house (b/c intangibles of space w/4 kiddos is valuable, too). But, dream homes today may be financial nightmares tomorrow.
Good luck!
Posted on 7/1/21 at 3:09 pm to Crescent Connection
quote:
The builder came back with us with a quote of $502k for a 2480 sq ft. home
Even with lumber prices today, that's pretty high unless you have top grade finishes. Over $200 per square foot.
Can you get another quote? Or perhaps try to value engineer the house a bit?
This post was edited on 7/1/21 at 3:10 pm
Posted on 7/1/21 at 3:34 pm to Crescent Connection
I would lower the retirement contribution before I took money away from the retirement.
I think you can get away with this ($90k down payment,$60k leftover from the initial $150 to float you for awhile, $450k mortgage) but if something were to happen, job loss other crazy scenario you would be SOL pretty quick. Might not be a bad idea to pay off the student loans before taking this on or get closer to $200-250k in avail liquidity
I think you can get away with this ($90k down payment,$60k leftover from the initial $150 to float you for awhile, $450k mortgage) but if something were to happen, job loss other crazy scenario you would be SOL pretty quick. Might not be a bad idea to pay off the student loans before taking this on or get closer to $200-250k in avail liquidity
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