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DOWN PAYMENT DILEMMA
There are several factors that contribute to the cost of purchasing a home. With soaring home values and rising interest rates, many potential first-time homebuyers find saving for a down payment increasingly difficult. For many people, the main source of savings is in the form of a 401k. Tapping into this resource for a home purchase is one way to find the down payment necessary to finance a new home, but should you use your 401k to buy a home? Experts are conflicted.
BORROWING VERSUS WITHDRAWAL
A 401k is a retirement savings plan offered by employers which takes pre-tax earnings and deposits them into an investment account for use in retirement. An individual can borrow against a 401k account balance or withdraw the money straight from the account. A 10% penalty is also imposed if the withdrawal is made before the age of 59.5.
LOAN LIMITATIONS
Potential home buyers may be able to take out a loan from a 401k account. A loan from your 401k should not affect your borrowing power, and you don’t need to qualify because you are borrowing from yourself. Loan amounts are typically limited to 50% of the balance., and they must be repaid within five years. Another option is a simple withdrawal; a 10% penalty applies, but the value is usually unrestricted.
DOWN PAYMENT OPTION
Saving for a down payment can be challenging. Using your 401k to help may be a great option. Speak with your financial advisor and see if this is the right financial move for you.
SOMETIMES FIRST TIME HOMEBUYERS DO NOT KNOW THEY HAVE OPTIONS OUTSIDE OF THE TYPICAL OPTIONS
Saving for a down payment can be challenging. Using your 401k to help may be a great option. Speak with your financial advisor and see if this is the right financial move for you.
