Quote:
Originally Posted by JillyS
You think people should include their 401K to determine if they have enough money to buy a home? Call me conservative, but I never count the money in 401ks and other retirement accounts as "available" funds. I think it's better to put as much as you can into them and forget they exist...we don't plan to touch them for (gulp) decades. Or am I misunderstanding your tip?
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No, you can legally withdraw from a 401(k)
or your IRA* without penalties going into the purchase of a home. However, if your account is subject to after-tax, then of course, you will treat the withdrawl as earned income at that point in time.
You do not have to pay this money back.
Another option is to take a 401(k) loan and use the downpayment like that instead (and pay the loan back)--that way at least you chance getting a fixed interest rate on the downpayment, you can make a much larger down payment than a smaller cash deposit, or you can add a cash deposit with the retirement amount to get the principal on the home loan as low as possible.
The lower your principal starts out when you take on the mortgage, the better you can handle the house payments.
Just don't get stupid and "upgrade" to a bigger home just because you can leverage the retirement funds to do it.
*You are limited to a $10K withdrawl limit for this purpose.