401k loan for down payment

Is it wise to borrow money from your 401K to buy a home? If so, how much? Not sure if this is something that is done often or frowned upon, which is why I ask. Dont you eventually have to pay back the loan?

Re: 401k loan for down payment

Bad, Bad, Idea....Yes you do have to pay it back.

Re: 401k loan for down payment

My gut would tell me not to touch my 401k unless it was absolutely necessary.

if you take a loan you have to pay it back with interest (but the interest goes into your account). It isnt like you are losing the interest.

Re: 401k loan for down payment

don't do that- you are better off doing a 80/20

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Re: 401k loan for down payment

you will get KILLED with tax penalties. I wouldn't rec ever borrowing from your 401k unless it was an absolute emergency

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Ya, I thought this might be the case. But I figured I'd ask the experts for the full lowdown.

Thanks!

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Re: 401k loan for down payment

Re: 401k loan for down payment

Re: 401k loan for down payment

A loan from your 401K for residential use is not taxable. While I was waiting for my co-op to close, I borrowed a small loan from my 401K to cover the balance of our downpayment. I paid it back within a month last year with little or no affect on my 401K investment.

Re: 401k loan for down payment

Message edited 11/30/2006 4:13:51 PM.

Re: 401k loan for down payment

There seems to be some confusion on this thread. Some people are talking about making a 401k withdrawal and some are talking about borrowing from your 401k. The only time you get hit with taxes and penalties are on 401k withdrawals, not borrowing from your 401k. If you happen to have an IRA then you can withdraw up to 10k penalty free to use as a down payment, provided you are a 1st time home owner, but you would still owe taxes on the withdrawal....but it's a better option than a 401k withdrawal since at least you don't get hit w/ the extra 10% penalty.

Re: 401k loan for down payment

There are no taxes or penalties on a 401k loan, if it is paid back in full. As stated earlier, you are paying yourself back with interest. However, the repayment and the interest are post-tax. I would recommend against it unless it isan emergency.

ETA: All 401k plans have plan documents that must be followed. If you are going to take a loan, be sure to read the participant loan program so nothing is misunderstood.

Message edited 11/30/2006 9:16:38 PM.

Re: 401k loan for down payment

Edit...we had an IRA loan rolled over from a company 401k...sorry for mix up.
IRA you don't have to repay (from what i was told)

you don't have to repay this.....
no plenty...we did this and it was the only way to get into a house for us....
The bank will send you a certain tax form and you just have file accordingly.
While we didn't get a huge return that year, we still got back money or broke even, i forget....(other factors apply)

remember...limit is only 10k we brought a co op and unable to do a 80/20 split as it would cost more on payments and intrest vs taking this out.

Now we have a smaller loan amount, and the property has already went up 20k (in 1 year) so i think my 10k investment is really good right now...

while 10k in a ira or 401k is more important, (no risk of losing money) home ownership is also an investment which you could gain from your property also

simple google link

Message edited 11/30/2006 10:54:55 PM.

Re: 401k loan for down payment

That money is there for retirement. It's really important that if you take a loan out on your 401K you understand that you have to pay it back. The quicker the better. If you leave your job or get fired/laid-off from that job you will have 60 days to re-pay the loan back to the acct. Also you can only take out as much as you are vested in.

It is a last resort or to use when you know you can pay it back quickly.

It's not an optimal strategy for most. I know quite a few people who have regretted doing this.

Re: 401k loan for down payment

Re: 401k loan for down payment

I would not recommend it.

You will not be penalized for taking the money but you have to pay it back.

The problem is if you leave/get laid off. You WILL HAVE to reimburse the loan within 90 days (or 60 days) not to pay early withdrawal penalty and tax.

I would only recommend for emergencies.

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Re: 401k loan for down payment

I once read an article that provided a thorough analysis of how borrowing against or cashing out a 401K or similar plan will work (how it will affect you in 10 years, etc). It provided various scenarios and showed that you will never really come out ahead if you do it. The article may have been skewed but at the time, it convinced me not to cash out or borrow. I was single at the time, and considering buying an apartment. I worked for the federal government and had something like a 401K (still have it). The only thing is that the apartment I would have bought doubled, possibly tripled in value after I passed it up.

Message edited 12/1/2006 12:03:15 AM.

Re: 401k loan for down payment

Re: 401k loan for down payment

As jrbaby posted, "the repayment and the interest are post-tax."

This is the main reason you should NEVER borrow from your 401K.

Re: 401k loan for down payment

My former boss did this. She bought a beautiful house in NJ and took out a chunk of her 401K for the DP. The information being given here is not all accurate, you can take out a loan against your 401K without tax penalties as long as it's for your personal home.

I do agree with paying it back though. My boss only did it because she knew her DH would be getting a substantial bonus in under a year, so she paid back all of it (yes, you're allowed to send it payments if you want to pay it off sooner).

Otherwise, you'll pay it back s l o w l y and with your post tax money, so your net pay will be less. I also believe that you'll stop contributing until the loan is paid (I could be wrong). If that's the case, it can set you back.

But if you plan on paying it back right away and in full, it's not a bad thing. It's there for your retirement and owning a house helps with that.

Speak to your HR department or go to the website of your fund and get more info. They usually have very detailed info and calculators.

Good luck!!

And totaly off topic but...no catalog yet.

Re: 401k loan for down payment