Using retirement money...ever a good idea?

[Anonymous]

DH and I need to move into a bigger home because our family has expanded and we have completely grown out of our two bedroom condo. Problem is, even after the sale of the condo, we just don't have enough cash for a down payment on a bigger home. I have almost $100k in my retirement account (I'm in my early 30's). Is it a really really bad idea to take $10-20k of that to use toward our downpayment? Is that a huge financial "no-no"?

[Anonymous]

Yes. Really bad idea. You will have to pay a penalty and tax on it, so you will need to take out quite a bit more than what you want to add to your down payment. You could consider a loan from your 401(k) but that is risky if there is any chance you would have to pay it back immediately (like if you left your job).

[Anonymous]

Ditto, a very bad idea. As PP said, you will have to pay tax and penalty for early withdrawal. But, further, it highlights the fact that you cannot afford this house. Down payment just a threshold measure on your finances. No offense, but $20K is a measly amount. If you are having problems coming up with this, you should not buy. It is your responsibility, and not the bank to really determine if you can swing it. So many people in recent past made bad decisions and blamed the banks for selling them bad mortgages. Perhaps you need to lower your expectations. People in other parts of the world live in much smaller homes. If you can, I suggest that you wait until you can comfortably afford the next house.

[Anonymous]

If you are in a stable job, and you are able to take out a loan, which you pay back to yourself with interest, it is certainly worth considering in this instance.

[Anonymous]

DH and I lived for a while with 2 children in a ONE bedroom apartment.

This is because we were saving enough money for our downpayment, which turned out to be 300K.
Did not consider using our retirement money.

Don't do this, OP. Learn to be happy with what you can afford.

[Anonymous]

We borrowed $30,000 from our retirement fund without penalty. Paid it back to ourselves with interest in 5 years. We're about to do it again to buy a new car.

[Anonymous]

the only probably is that you are loosing the interest and compound interest on the retirement money that you are pulling out.

[Anonymous]

d Not good to trade your retirement for a car..but to ach it's own. Especially when there are car loans for 0, .99 and 1.49 and 1.99% interest car loans out there.

[Anonymous]

Plus if you want to change jobs you will have to pay it back immediately. Borrowing to buy a new car? Ridiculous. These are people who will be trying to live off ss in retirement.

[Anonymous]

Don't do it. Live in your means. It seems that you are not in a financial position to move at this moment. Declutter, reorganize and get rid of some stuff in your condo to give yourself a little bit of room. Then SAVE SAVE SAVE for a down payment and get a reasonable mortgage on a reasonable size home.

[Anonymous]

I did that. Purchase of a home qualified as a hardship withdrawal which meant that it was taxed but not penalized. There was a limit on how much/how many times you can do it. My amount was modest, like $8k.

[Anonymous]

Anonymous wrote:Ditto, a very bad idea. As PP said, you will have to pay tax and penalty for early withdrawal. But, further, it highlights the fact that you cannot afford this house. Down payment just a threshold measure on your finances. No offense, but $20K is a measly amount. If you are having problems coming up with this, you should not buy. It is your responsibility, and not the bank to really determine if you can swing it. So many people in recent past made bad decisions and blamed the banks for selling them bad mortgages. Perhaps you need to lower your expectations. People in other parts of the world live in much smaller homes. If you can, I suggest that you wait until you can comfortably afford the next house.

Thanks for your feedback. We're trying to make a $100k downpayment to keep our monthly mortgage amount comfortable and to avoid having to take a "jumbo" loan, but we're $20k shy of that in our savings.

[Anonymous]

I'd probably just save the $20k, but that's just me.

[Anonymous]

In your situation, it is a bad idea. We did it as a sort of "bridge loan" but replenished the full amount with interest in 8 weeks. Have you considered buying a home that needs improvements, and then making those improvements bit by bit as you can save for them.

I feel for you, the housing market is tough out there. But I don't think this is your solution.

[Anonymous]

Anonymous wrote:We borrowed $30,000 from our retirement fund without penalty. Paid it back to ourselves with interest in 5 years. We're about to do it again to buy a new car.

Doing this to buy a house is one thing. To buy a car? That's idiotic.