Read a lot of different sites but wanted to see what everyone here thinks. I'm looking to sell my current home and move. My cash savings is minimal (6 months emergency funds) but 401K is healthy. I've worked to pay off the majority of my debt (cars, school loans, no CC) so I can afford the monthly hit paying the 401K loan back. Has anyone else done this and would they recommend it?
Using 401K loan on down payment for house
- Thread starter Hahahaha
- Start date
Sounds Like A Mistake
theworldismine13
God Emperor of SOHH
are you not getting any money from the sale?
if you plan to live in the new house for a very long time or forever then yeah thats fine, but if you are gonna be transient then no,
why would you put your life savings on a house you will only live in for a few years?
why are you selling the house? just get a property manager and rent out the house
are you switching jobs? you can only do 401k loans if you are working, you can still take out a loan before you leave the job but when you leave, whatever you owe on the loan will be taken out of your 401k principle
also you can take out a loan for any reason, so you can use it for a down payment, but the rule about using the 401k for a down payment is not a loan, its taken out your principle balance, essentially your are cashing out early without paying taxes on it
if you plan to live in the new house for a very long time or forever then yeah thats fine, but if you are gonna be transient then no,
why would you put your life savings on a house you will only live in for a few years?
why are you selling the house? just get a property manager and rent out the house
are you switching jobs? you can only do 401k loans if you are working, you can still take out a loan before you leave the job but when you leave, whatever you owe on the loan will be taken out of your 401k principle
also you can take out a loan for any reason, so you can use it for a down payment, but the rule about using the 401k for a down payment is not a loan, its taken out your principle balance, essentially your are cashing out early without paying taxes on it
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sayyestothis
Free the guys
The big issues are will u keep job for at least the term of the loan. If yes then its fine. U are paying yourself interest so its not a real debt. Most plans pay you 4%. Obviously if you do this, ur loan portion should be used as part of your fixed income/bond allocation of your portfolio. So make sure you change ur current to more stock heavy.
Id you dont plan to stay at job for term of loan dont do it. Once you separate 95% of plans dont allow you to continue even if you make your own payments outside of paycheck. This will cause a 100% early withdraw distribution assuming you arent 60 yet. It means you will take the tax hit, increase ur overall tax bracket for the year and also pay a 10% early w/d tax penalty on top potentially losing up to 45% of dollar amount depending on ur bracket.
Id you dont plan to stay at job for term of loan dont do it. Once you separate 95% of plans dont allow you to continue even if you make your own payments outside of paycheck. This will cause a 100% early withdraw distribution assuming you arent 60 yet. It means you will take the tax hit, increase ur overall tax bracket for the year and also pay a 10% early w/d tax penalty on top potentially losing up to 45% of dollar amount depending on ur bracket.
theworldismine13
God Emperor of SOHH
Why Would Anyone Borrow From Their 401k.. Most stupid shyt you could do.
lots a good reasons
pay for school, consolidation loan, or a down payment
its just stupid if you are using the money for consumables products, but if its part of a long term plan and its something very expensive that you dont have the cash for then it makes sense
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88m3
Fast Money & Foreign Objects
Really should talk to your accountant.
One of the finance guys I know recommended me doing it against a life insurance policy. Not sure how I feel about it personally.
If I remember right the 401k should get prime rates.
One of the finance guys I know recommended me doing it against a life insurance policy. Not sure how I feel about it personally.
If I remember right the 401k should get prime rates.
Just to add to this, see what payment options your plan offers if you were to separate.
Also, if you do take it as a tax hit, it's 20% federal tax,any state taxes and a 10% penalty may apply, but speak with a tax advisor if you can be an exception for it.
Big Skilly Films
All Star
because its your money instead of going to the bank and borrowing their money with more interest why not use your money pay it back with low interest and you dont lose money because its all your money
because its your money instead of going to the bank and borrowing their money with more interest why not use your money pay it back with low interest and you dont lose money because its all your money
You Can Tell When People Don't Understand. You should do math before you talk
Big Skilly Films
All Star
so you rather pay the bank 17% interest instead of 4% interest? 
4% sounds good right...
Now let's say you borrow 50k from your 401k.. How long do you think it will take to pay it back?
Big Skilly Films
All Star
it depends on how much i want to...i can pay off a 50 k loan in less than five yrs...as opposed to a bank which will take a lot longer
Thanks for the replies so far.
Between wife and I, 20K debt total when counting everything but our current mortgage. We gross around $200K.
1. I should clear about 35K when I sell my home.
2. Outside of a job relocation, I plan to be in the house for a long time.
3. House is too big and too far away from work. I don't want to deal with renting out my property. It's a townhouse with very high association fees.
4. I'm more likely to switch jobs so would do this with my girl's 401K
Her job is mostly safe (you never know) and she's not looking to move anywhere.
Looking to have lower monthly bills and not get raped by MIP/PMI.
Between wife and I, 20K debt total when counting everything but our current mortgage. We gross around $200K.
1. I should clear about 35K when I sell my home.
2. Outside of a job relocation, I plan to be in the house for a long time.
3. House is too big and too far away from work. I don't want to deal with renting out my property. It's a townhouse with very high association fees.
4. I'm more likely to switch jobs so would do this with my girl's 401K
Her job is mostly safe (you never know) and she's not looking to move anywhere.
Looking to have lower monthly bills and not get raped by MIP/PMI.
