Funding a house down payment with retirement money

I'm a lifelong renter, but starting to think about purchasing a home in the next year or two. I've heard first time homebuyers can borrow up to $10k out of their retirement funds without any penalty.

I know a lot of people here are better with money than I am - is this a good idea? And what options are out there for funding down payments? I have about $100k in stocks and retirement accounts. Not a ton in savings, but could save up a decent amount in the next year, although an extra $10k on the downpayment seems like it'd lower the monthly payments quite a bit and perhaps save on interest as well.

Don't do it.  That money will do you way more good in your 401k than in a house downpayment.

51SektionD50 -

Get a USDA loan, no downlayment required. Don't rob your future self of money.

I just got a USDA loan last November on my first home purchase. Zero down was very nice. There are other zero down options for first home buyers too.

JitzOnYourFace - 
51SektionD50 -

Get a USDA loan, no downlayment required. Don't rob your future self of money.

I just got a USDA loan last November on my first home purchase. Zero down was very nice. There are other zero down options for first home buyers too.

Thanks. I looked up the USDA loan, but it seems restricted to rural areas. Is there an equivalent for urban areas?

I borrowed 11k out of my 401k for down payment. I'm paying it off over 10 years. And paying myself back with interest. We bought in 09/16 and house already has 100k in equity between down payment and appreciation. Homes in my opinion are an investment and it's necessary to have a paid off home befor you can retire. It's just moving money from here to there, but homes tend to appreciate faster than a 401. 

Start saving as much as possible now, so you won't need to tap into your 401k when the time comes

Leave the 401k. You have been renting for years, bite the bullet and keep renting while you sock money away asap. Don't screw with your retirement 

Reduce 401k contribution to amount of match, and start saving for down payment.

See if there are any first time home buyer programs and classes / courses. Some states have loan programs. Also there can be 'lower income' properties these courses can help you find out about (google first time home buyer courses in YOUR STATE). Sometimes with zoning laws that new condo development with units starting at $300k, has to have 2 (or whatever) units available at $200k (catch is when you sell subject to similar rules, unit can only incr x% per yr), but that stuff can be answered in a course / class.

It's only about 100 off your morgage a month for every 10k you put down 

robopimp - I'm a lifelong renter, but starting to think about purchasing a home in the next year or two. I've heard first time homebuyers can borrow up to $10k out of their retirement funds without any penalty.

I know a lot of people here are better with money than I am - is this a good idea? And what options are out there for funding down payments? I have about $100k in stocks and retirement accounts. Not a ton in savings, but could save up a decent amount in the next year, although an extra $10k on the downpayment seems like it'd lower the monthly payments quite a bit and perhaps save on interest as well.

Are you in the US or Canada?

I would explore other options but would have no problem borrowing from my 401k if it's what I had to do to get a home.

Whats your age? How much debt do you have? (Credit, cars, student loans etc.) How much cash savings do you have outside of your retirement accounts? How much do you currently save monthly? How much do you contribute monthly to retirement? What is the price range you are looking for in a house?

Pulling from retirement is a poor longterm decision.

Most states offer first time homebuyer incentives that dont involve pulling from retirement. A lender should be able search for incentives your qualify for, but be careful as many tack on higher interest rates which will cost you significantly more over the life of the loan.

Without answers to the above, my advice would be leave retirement alone and save until you can properly cash flow the purchase. (Conservatively the closing costs, ideally a 20% downpayment) 

The fact that they have that option would seem to indicate its a pretty useful feature. Should check with a money manager but if you need it use it.

If you make any sort of decent salary at all you won't qaulify for any good style of loans that make it 0 down. It's stupid. If you have good credit, a good job and show responsibility you have to take the hardest road to being a homeowner.

I got fed up with that bullshit and just took 10K out of my 401K. Walked into the bank and said fuck you now give me the god damn house I want that's 152,000 since you pre approved me 300,000.

They want these loans to fail. So unless you're living on assistance it's a bitch so rely on yourself and pay yourself back.

bakobell -

I borrowed 11k out of my 401k for down payment. I'm paying it off over 10 years. And paying myself back with interest. We bought in 09/16 and house already has 100k in equity between down payment and appreciation. Homes in my opinion are an investment and it's necessary to have a paid off home befor you can retire. It's just moving money from here to there, but homes tend to appreciate faster than a 401. 

Historically homes do not appreciate faster than the general stock market

bakobell -

I borrowed 11k out of my 401k for down payment. I'm paying it off over 10 years. And paying myself back with interest. We bought in 09/16 and house already has 100k in equity between down payment and appreciation. Homes in my opinion are an investment and it's necessary to have a paid off home befor you can retire. It's just moving money from here to there, but homes tend to appreciate faster than a 401. 

Houses generally arent investments, they are money pits. The true cost of a house will be twice that of the loan ammount because of interest, (look at an amortization schedule) and thats NOT factoring in the costs of additional maintenance, repairs, upgrades, insurance, utilities, selling and closing costs etc. That is not to say owning a house is a bad idea, (homeowner here) but the average person loses money or breaks even at best when factoring in the true costs of home ownership. People will say I have X ammount of equity, or made X ammount of money selling a house, without considering the actual money theyve spent to achieve it. 

99% of homes purchased will not exceed an 8% annual return of investment like the stock market. Hence why it is generally considered a poor use of ones money to pull from retirement to fund a home purchase. Or why many will NOT pay extra towards the principle of a house, because they will get better returns in the market. 

Home ownership is absolutely NOT neccesary for retirment, but can play a big factor in the average persons retirement planning, particularly if they have not managed to invest appropriately throughout their life.

 

The Kangaroo -
bakobell -

I borrowed 11k out of my 401k for down payment. I'm paying it off over 10 years. And paying myself back with interest. We bought in 09/16 and house already has 100k in equity between down payment and appreciation. Homes in my opinion are an investment and it's necessary to have a paid off home befor you can retire. It's just moving money from here to there, but homes tend to appreciate faster than a 401. 

Houses generally arent investments, they are money pits. The true cost of a house will be twice that of the loan ammount because of interest, (look at an amortization schedule) and thats NOT factoring in the costs of additional maintenance, repairs, upgrades, insurance, utilities, selling and closing costs etc. That is not to say owning a house is a bad idea, (homeowner here) but the average person loses money or breaks even at best when factoring in the true costs of home ownership. People will say I have X ammount of equity, or made X ammount of money selling a house, without considering the actual money theyve spent to achieve it. 

99% of homes purchased will not exceed an 8% annual return of investment like the stock market. Hence why it is generally considered a poor use of ones money to pull from retirement to fund a home purchase. Or why many will NOT pay extra towards the principle of a house, because they will get better returns in the market. 

Home ownership is absolutely NOT neccesary for retirment, but can play a big factor in the average persons retirement planning, particularly if they have not managed to invest appropriately throughout their life.

 

I agree with this.

Or it's usually a rather poor investment. People don't take into account the full costs of owning a home. They just think I bought it for 160k now it's worth 200k.

Take into account taxes, home owners insurance, interested, closing cost, and the big think the extra utilities bills you will incure.

I have dumb friends that way overbought on houses their excuse is they are bad with money and this investment will force them to save.


They got a surprise when their water bill was $250 and electric bill was $550.

In their apartment their average electric bill was about $125.

They are pretty much house poor now.