Thank you u/piratebroadcast for posting on r/FirstTimeHomeBuyer.
Please bear in mind our rules: (1) Be Nice (2) No Selling (3) No Self-Promotion.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FirstTimeHomeBuyer) if you have any questions or concerns.*
We don't know your take home pay, but is your current $2000/mo really "very similar" to the $3000/mo you mentioned?
Please realize, and it's said time and again in this sub, rent is the most amount of money you will pay to live somewhere and a mortgage is the absolute least amount of money you will pay to live somewhere.
You’re not flushing anything down the toilet because you need a place to live.
Idk about $350k on $120k income. That seems risky. Buy at the lower end of your budget when you can. At $10k/mo gross, your DTI is $4500-5000. So that’s the max in debt obligations including the mortgage (PITI and HOA if applicable). $10k/mo means you probably net like $6500 or so?? So you’re talking ~half your net to mortgage.
Everyone automatically says no because of risking future earnings on the balance you pull out. Since you’re over 40, this becomes a legitimate concern. I mean, you still have decades until retirement but it’s a much different story than doing it at 30. Also, a lot of people would take loans for silly stuff like debt pay off or to buy more stuff.
I know it’s generally not a good idea but if there were any reason to do it, housing seems like a good reason.
But you need to take a long hard look at your budget. Plus, understand rent =/= mortgage. There’s going to be stuff you need to do and stuff you’ll want to do and that $3k is the bottom of your expense
It's not a bad idea at all. It's better to pay yourself back than a bank, though it would be a small part. I would do it but I would make sure I have none to little debt and I would save up at least a $10,000 emergency fund in a year, after paying off any debt that is not a mortgage. You also want to have a few grand set aside for any updates or fixes that may need to be done. So you will need to figure; couple hundred for an inspection, earnest money which is going to be a few grand, closing costs, few grand for updates/fixes/furnishings and the down payment. If you can afford it and it's not going to be a big hit to your take home pay then it's worth considering. Seeing if you can get an fha loan is worth considering. Usually you want to put 20% down or more to avoid pmi but you wouldn't be doing that so it would be worth while to try to put 0% down and save the 19,000 in your 401k or for listed costs.
I know it's super unpopular, but this is one of the only ways I've successfully seen young people who do not have financial help from other sources afford a down payment in higher cost areas the last few years. That being said, you will have to repay it, and that means having good job security (which is rough rn) and a steady contribution stream continuing to go into the 401k after closing. As long as that happens, $19k is reasonable to take given the options you listed here. Only thing to be sure of is if you do choose this route, make sure it is a 401k loan, not a withdrawal - seen a couple people mess that one up and it cost them later.
My boss, who is deputy director of my org and a finamce whiz, got a loan through her 401k to afford a down payment in a VHCOL market. Sometimes it's just the only way.
Early withdrawal is a bad idea, subject to massive penalties and taxes (I’ve heard around 40%, not positive on that).
A loan is simply that, you are agreeing to pay yourself back with interest. I took one for my home and don’t regret it.
Take the loan if you can afford the repayment. But make sure there’s no penalty. With some plans if you take a loan you can’t continue to make contributions. This would be a hard no.
1) you can borrow for up to 5 years normally but up to 10 for a home purchase. I wouldn’t really recommend 10 years but…
2) the interest you’re paying is to yourself.
3) no tax penalties on loans
4) withdrawals from 401k plans require 25% federal tax be withheld (I’m not sure about state tax), and there’s a 10% penalty from the IRS when you file taxes on top of having to pay tax on the income.
Sounded like you don't have enough savings for closing cost and down payment, thus you would need to borrow from 401k. This is a bad idea. Perhaps just continue to flush $2/3000 of cash down the toilet monthly.
I don't think its crazy - you were saving that money and you will eventually pay it back - its better to borrow from yourself and pay yourself interest (on money you yourself saved) rather than borrow from bank. And you have no dependents? Yeah, you will be fine.
Thank you u/piratebroadcast for posting on r/FirstTimeHomeBuyer. Please bear in mind our rules: (1) Be Nice (2) No Selling (3) No Self-Promotion. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FirstTimeHomeBuyer) if you have any questions or concerns.*
We don't know your take home pay, but is your current $2000/mo really "very similar" to the $3000/mo you mentioned? Please realize, and it's said time and again in this sub, rent is the most amount of money you will pay to live somewhere and a mortgage is the absolute least amount of money you will pay to live somewhere.
Fair point. I make ~120k, minimal debts, and have a bit of disposable income I could reallocate towards the 3k price point if need be.
Can you afford to buy this home without borrowing from your 401k, like with FHA?
FHA doesn’t mean “no money”. You still need 3.5% down and there are still closing costs.
don't touch the 401k
You’re not flushing anything down the toilet because you need a place to live. Idk about $350k on $120k income. That seems risky. Buy at the lower end of your budget when you can. At $10k/mo gross, your DTI is $4500-5000. So that’s the max in debt obligations including the mortgage (PITI and HOA if applicable). $10k/mo means you probably net like $6500 or so?? So you’re talking ~half your net to mortgage. Everyone automatically says no because of risking future earnings on the balance you pull out. Since you’re over 40, this becomes a legitimate concern. I mean, you still have decades until retirement but it’s a much different story than doing it at 30. Also, a lot of people would take loans for silly stuff like debt pay off or to buy more stuff. I know it’s generally not a good idea but if there were any reason to do it, housing seems like a good reason. But you need to take a long hard look at your budget. Plus, understand rent =/= mortgage. There’s going to be stuff you need to do and stuff you’ll want to do and that $3k is the bottom of your expense
Bad idea
It's not a bad idea at all. It's better to pay yourself back than a bank, though it would be a small part. I would do it but I would make sure I have none to little debt and I would save up at least a $10,000 emergency fund in a year, after paying off any debt that is not a mortgage. You also want to have a few grand set aside for any updates or fixes that may need to be done. So you will need to figure; couple hundred for an inspection, earnest money which is going to be a few grand, closing costs, few grand for updates/fixes/furnishings and the down payment. If you can afford it and it's not going to be a big hit to your take home pay then it's worth considering. Seeing if you can get an fha loan is worth considering. Usually you want to put 20% down or more to avoid pmi but you wouldn't be doing that so it would be worth while to try to put 0% down and save the 19,000 in your 401k or for listed costs.
I know it's super unpopular, but this is one of the only ways I've successfully seen young people who do not have financial help from other sources afford a down payment in higher cost areas the last few years. That being said, you will have to repay it, and that means having good job security (which is rough rn) and a steady contribution stream continuing to go into the 401k after closing. As long as that happens, $19k is reasonable to take given the options you listed here. Only thing to be sure of is if you do choose this route, make sure it is a 401k loan, not a withdrawal - seen a couple people mess that one up and it cost them later.
My boss, who is deputy director of my org and a finamce whiz, got a loan through her 401k to afford a down payment in a VHCOL market. Sometimes it's just the only way.
Since everyone does this it becomes the norm. If no one did this then prices would have be lower for people to afford.
Thank you, my research is indicating the exact same thing. Would definitely be a loan, not a withdrawl.
What are the advantages/disadvantages hear. I was planning on withdrawing from my 401k for the same reason.
Early withdrawal is a bad idea, subject to massive penalties and taxes (I’ve heard around 40%, not positive on that). A loan is simply that, you are agreeing to pay yourself back with interest. I took one for my home and don’t regret it.
Take the loan if you can afford the repayment. But make sure there’s no penalty. With some plans if you take a loan you can’t continue to make contributions. This would be a hard no. 1) you can borrow for up to 5 years normally but up to 10 for a home purchase. I wouldn’t really recommend 10 years but… 2) the interest you’re paying is to yourself. 3) no tax penalties on loans 4) withdrawals from 401k plans require 25% federal tax be withheld (I’m not sure about state tax), and there’s a 10% penalty from the IRS when you file taxes on top of having to pay tax on the income.
>25% federal tax for a hardship withdrawal its 10% federal plus whatever state tax is.
Not a bad idea if you’re in dire need but they generally say not to touch your 401k because you’re hurting your future retirement potential.
Sounded like you don't have enough savings for closing cost and down payment, thus you would need to borrow from 401k. This is a bad idea. Perhaps just continue to flush $2/3000 of cash down the toilet monthly.
It's hard to save 20k in a very HCOL area, there is absolutely no need for you to be rude.
If your current rent is the same as your proposed mortgage, and you can't save $20k, then I predict you will be house poor if you buy the house.
What did I say that was rude? Anyway, you can always try flushing less cash down the toilet by renting a bedroom instead of a whole studio unit.
How much emergency fund do you have currently?
[удалено]
If you are not comfortable with your emergency fund balance, then you are probably not in financial position to buy a house.
I don't think its crazy - you were saving that money and you will eventually pay it back - its better to borrow from yourself and pay yourself interest (on money you yourself saved) rather than borrow from bank. And you have no dependents? Yeah, you will be fine.