Borrowing from retirement accounts for down payment

[Anonymous]

Anonymous wrote:We did option 2–as a 5 year loan. The money we borrowed does not earn interest, but does ultimately end up back in the account— an we did not lose employer match. . We paid off about 45 months, and are getting ready to make a lump sum repayment for the rest.

The upside is that moving again costs a lot of money—agent fees, origination fee, inspection fees, survey fee, moving company. It’s a lot cheaper (and less stressful) to move once. Downside is you lose the interest on the withdrawal until you put it back. And, if you switch jobs before you pay it back, you have to treat the amount of the loan outstanding as a withdrawal,and pay interest and penalties.

I say do it if;

You are younger (not nearing retirement)

You are doing a loan, not a withdrawal

Your budget can easily handle the monthly repayment amount on the loan

You expect to be at your job until the end of the repayment period.

I’m in TSP, which has a very low interest rate on home loans. Also, the value of my house grew faster than my TSP. Lifecycle fund. So, I came out slightly ahead by borrowing and buying. The money I pit in my house grew fast. But no one can really predict a housing crash or a stock market crash.

Usually, I would say no go. But I think buying a house is one of the few things you bend rules to do.


We are all of those things, did option 2, and are glad we did.

[Anonymous]

my wife took out a relatively small <10K loan and it was very nice to have a bit of extra money on closing, easy to pay back too

[Anonymous]

OP, it depends on how much you have in savings/retirement, what sort of account it is being saved in, what your income is, how many more working years you have ahead of you, etc. Also, I would say that the location of the home is a factor (is it likely to appreciate/hold its value).

In our case, we are about to do this, but we are NOT taking the money from our 401ks. We are taking it from about $2M we have in investments, so basically just reallocating the funds to a different type of investment.

[Anonymous]

I did it, borrowed 50k from TSP (federal government equivalent to 401k) in order to finance a mortgage. It basically bridge the gap between my down payment, so I could have the necessary 20% down. I plan to pay it off quickly, within the next 2 to 3 years. We are in our early 30s, wife is a SAHM, and we wanted a forever home which cost 900k now instead of later (2 to 3 years). Our kids are 6 and 4 and not desiring another move again, and wanted to settle them into a school system while young.

I'm looking at strong income growth for the next 10 years, possible seeing 100k to 150k more by then so not going to sweat it. The wife will return to the work force once the youngest enters elementary school. Currently making 170k at a financial regulatory agency.

If you can make it work for you, do it. You will forgo some short-term stock growth in your portfolio but you end up obtaining your desired property sooner rather than later. It's a trade off. I've been over saving for years, so in the long term it's not going to affect my retirement outlook on bit.

[Anonymous]

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Anonymous wrote:If you have room in your budget for repayment, you would have room in your budget to save. Clearly you don’t, because you don’t have the savings.

This makes no sense.

It makes perfect sense. How do they plan to repay? Whatever money will be going toward that should be funneled into saving for the larger down payment. It doesn’t sound like there are time constraints.

No it makes zero sense. They’re saving money in the 401k. It sounds like your suggestion is they stop saving in the 401k and save in their regular account until they get $50k. Nothing wrong with thanking the loan OP. Not everyone has tens of hours ands of dollars sitting around.

So you are advising them to take $50k out of the 401k, then stop making 401k contributions for the 3-5 years it takes to repay the 401k loan?

No, I’m saying that the 401k is savings and there is nothing wrong with borrowing from it. I save more in the 401k instead of a regular account because I can take a loan if I need to.

That’s nice. How do you recommend they repay the 401k loan if they don’t have room in their budget?

So to be clear, you think that because they can’t come up with 50 grand all at once, they can’t afford a couple hundred a month loan payment for 15 years? Like I said, your comments make no sense. It sounds like problems you’ve never had to deal with.

No, this sounds like a problem you’ve never had to deal with.

You can’t repay a 401k loan over 15 years. You have 5 years. And if you leave your job (or get fired, or laid off) before that 5 years is up, you repay the loan immediately, or it is treated as income, and taxed accordingly, plus 10 percent. But you’re not withholding that money through payroll deduction, so come April 15, OP will owe thousands (or tens of thousands to the IRS). And again, she doesn’t have room in her budget to save, so where will the money to pay the tax bill come from?

OP isn’t asking about a loan to feed her children or obtain life-saving medical care: she wants to buy a luxury item.

Your ignorance and arrogance is astounding. You have 5 years for a regular loan and 15 years for a home loan. Just quit while you’re behind.

OP, listen to this poster.

Both of you should take $50k from your 401ks, and combine that with existing savings to buy the best house you can stretch for. You don’t want your kids to go to a school with the poors, and I bet your incomes will rise exponentially at your current employers once you buy a house.

Again, problems some people never have to deal with. This person is being sarcastic as hell but if their kids were in a school rated a 1 or 2 and they had to borrow from a 401k to get into a forever home with great school they would do it. But for some random internet stranger it’s a no go.

OP do what is best for your family. You and your spouse should be able to figure it out and remember you can always repay the loan faster if you get a promotion.

While I agree this might be worth it for the school purposes the only thing OP mentioned was space. Which is not as great a reason to stretch to buy for

[Anonymous]

We just did this but we did it in place of taking out a HELOC to make the down payment on a new house with a plan to sell our old house once we moved. So we'll pay back the retirement account as soon as we sell the old house. I would be nervous about doing this otherwise, but we tend to be financially VERY risk averse and bought a house way under our budget and only put in money that we are pretty certain we'll get back from the sale of our old house.

[Anonymous]

Anonymous wrote:I did it, borrowed 50k from TSP (federal government equivalent to 401k) in order to finance a mortgage. It basically bridge the gap between my down payment, so I could have the necessary 20% down. I plan to pay it off quickly, within the next 2 to 3 years. We are in our early 30s, wife is a SAHM, and we wanted a forever home which cost 900k now instead of later (2 to 3 years). Our kids are 6 and 4 and not desiring another move again, and wanted to settle them into a school system while young.

I'm looking at strong income growth for the next 10 years, possible seeing 100k to 150k more by then so not going to sweat it. The wife will return to the work force once the youngest enters elementary school. Currently making 170k at a financial regulatory agency.

If you can make it work for you, do it. You will forgo some short-term stock growth in your portfolio but you end up obtaining your desired property sooner rather than later. It's a trade off. I've been over saving for years, so in the long term it's not going to affect my retirement outlook on bit.

You have a 170k HHI with one person working and you took out 50k to buy a 900k house? Even with a 720k mortgage that is insane to me.

[Anonymous]

You'll save A LOT of money by only moving once. Transaction costs are no joke.

We were facing a similar dilemma (but only used savings): buy 2BR condo now in core DC and trade-up to SFH in 5 to 7 years once we have a kid OR just buy the house now.

My rough calculations were that the transaction costs alone in buying now, selling condo, and then buying a SFH would add about $60-70K in transaction costs alone.

Buying the house immediately became a no-brainer, even if it was a bit of a stretch. And that's not factoring in that SFH prices will, most likely, be higher in 5 to 7 years in desirable areas.

Therefore, Option 2. You're paying yourself back, and frankly, this stock market is pretty overheated. Cash out some gains now, while your 401K account is flush.

[Anonymous]

You have a 170k HHI with one person working and you took out 50k to buy a 900k house? Even with a 720k mortgage that is insane to me.

Agreed. My DH also works at a financial regulatory agency with a comparable income, plus i work as well and we only have one kid. We took out $44K from one of our TSPs to help with renovation costs on a new house that was only $535K, and we are paying it back as soon as we sell our old house. Maybe this PP has other sources of income or wealth like family assets.

[Anonymous]

What makes sense for you? How old are you? I've borrowed from my thrift plan and just paid it back. Might it mean I have to work a couple more years, maybe but maybe not. Look at the numbers and if this is what you have to do, then do it. I believe you will have at max. 5 years to pay it back. Just don't borrow again, making it your go to option.

[Anonymous]

Not a financial expert so it may be that option 2 is a good one but my motto is "Life is what happens while you're making other plans" so I vote for Option 1. If you stretch to do option 2, you might find that this isn't your forever house and you want to sell it and move anyway.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I did it, borrowed 50k from TSP (federal government equivalent to 401k) in order to finance a mortgage. It basically bridge the gap between my down payment, so I could have the necessary 20% down. I plan to pay it off quickly, within the next 2 to 3 years. We are in our early 30s, wife is a SAHM, and we wanted a forever home which cost 900k now instead of later (2 to 3 years). Our kids are 6 and 4 and not desiring another move again, and wanted to settle them into a school system while young.

I'm looking at strong income growth for the next 10 years, possible seeing 100k to 150k more by then so not going to sweat it. The wife will return to the work force once the youngest enters elementary school. Currently making 170k at a financial regulatory agency.

If you can make it work for you, do it. You will forgo some short-term stock growth in your portfolio but you end up obtaining your desired property sooner rather than later. It's a trade off. I've been over saving for years, so in the long term it's not going to affect my retirement outlook on bit.

You have a 170k HHI with one person working and you took out 50k to buy a 900k house? Even with a 720k mortgage that is insane to me.

I was thinking the same thing. A TSP loan means a federal employee, which means no way they are seeing 100k to 150k income growth within the federal government because that would put the person well over all pay caps. So this has to be based on an an assumption about moving to the private sector at some senior executive level in the financial industry? (Which is by no means assured "ten years in the future.") But I'm assuming this could also mean the spouse going back to work?

Pretty big risk. We're worried about over extending ourselves on a house that expensive with two incomes that size and no kids...

[Anonymous]

We borrowed against 401k and repaid it back when I got my next year's bonus. Don't borrow a lot unless you can pay it back soon.