Does it make sense to tap your 401k to purchase a home? For most families in America, one of the biggest Staples of wealth is a retirement account. Here is what you might want to keep in mind when you are deciding where to get funds to purchase a house…
To successfully close on a house you really need to have a down payment. The idea that you can purchase a house with no money down unless you’re looking at a VA loan (if you’re an ineligible military veteran or the possibility of a USDA loan in certain specific geographical areas only) you really need to have a down payment.
The lease down payment that you need to purchase a house with 3.5%. There are other programs out there such as government grant programs, the rates on those mortgages are typically higher, contain income limits where you actually penalized by if you earn too much money. You can also expect higher interest rates on those programs as well.
To buy a home you need at least 3.5% down for an FHA 30-year fixed-rate loan. Three and a half percent down of the purchase price so for example, a $300,000 house is 10,500 as a down payment. Eligible sources for these funds can be your own personal monies, they can also be donor monies and they can even come in the gift from your employer. A lot of people that might not have money saved up in a particular bank account and don’t have access to donor funds might have a 401k. Tapping the 401k is a great alternative for coming up with a down payment to purchase a house. Almost every single 401K provider provides options for borrowing on that money to purchase your first home or even a move-up home if it’s a primary home you intend to live in.
So most companies will let you borrow up to 70% of the value of the 401k. This is if you do not have any other loans on the 401k. If you have another loan on the 401k, the first loan has to be paid off, then you can borrow on the rest of the funds. By tapping the 401k, you open yourself up to more available resources you may not have thought possible in buying a primary home.
Looking to get a mortgage? Get a no-cost quote now!
RELATED MORTGAGE ADVICE FROM SCOTT SHELDON
View More from The Mortgage Files:
begin your mortgage journey with sonoma county mortgages
Let us make your mortgage experience easy. Trust our expertise to get you your best mortgage rate. Click below to start turning your home dreams into reality today!