Tapping your retirement to buy a home

 Homebuyer Tips  Comments Off on Tapping your retirement to buy a home
Aug 272015

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

While current mortgage guidelines require only a 3% to 3.5% down payment to purchase a home, even that’s a hurdle for some folks. If this sounds familiar, I may have a solution if you have retirement savings. The approach depends on the type of retirement plan you have.

If you have a 401k, you may be able to borrow against the account balance, if your plan permits it. Typically, the loan is limited to the lesser of $50k or 50% of the balance. Note that if you’re not using the loan to purchase your primary residence, the loan typically must be repaid within 5 years.

For those folks who have an IRA, you cannot technically borrow from the account. However, if you’re buying or building your first home, you can take out up to $10k without the distribution being subject to the standard 10% penalty. Note that if your IRA contributions are with pre-tax income, you’ll owe income tax on the money you take out.

Before you exercise either of these options, I suggest you talk to your financial advisor about how tapping your retirement account will affect your retirement plans.