Using Retirement Savings for Your Down Payment

by Dan Lewis - Date: 2007-02-28 - Word Count: 472 Share This!

One of the biggest hurdles to buying your first home is coming up with the down payment. Alas, you may already have it and not even realize it.

Long ago, you needed twenty percent of the value of the home you were interested in as a down payment. On a $300,000 home, that equated to a whopping $60,000. As you can guess, few people could afford such a cost on a new home. The mortgage industry slowly but surely evolved a more liberal attitude towards down payments. These days you need much smaller percentages of the value as down payments. At the same time, prices have risen dramatically, so it can be a catch-22 situation.

When you make the decision to buy a home, you most likely will still need to come up with a down payment. Yes, there are programs that do not require them, but they often are not good deals. The primary reason has to do with the risk of getting upside down on the home. If you do not make a down payment, you have no equity in the home. If the value of the home drops, as we are seeing now in many parts of the country, you suddenly can owe more than the home is worth. Hopefully, the value will bounce back, but it is not a good situation to be in.

When dealing with down payments, there are a couple of ways you can go about the process. The first is to simply save up money over time. The problem, of course, is this takes time. You can also borrow money from family and so on, but I want to focus on a lesser-known option.

If you are a salaried employee, your employer may offer you a 401k program. You should be investing as much as possible in it given the pre-tax factor. Regardless, you should be vested in a certain amount of the money held in the 401k. Well, guess what? You can borrow from it. In this case, you can do so to use the money as a down payment on a new home.

When borrowing from your 401k program, it is important to talk with the person in charge of it so you can get a grasp of the rules. Generally, you can borrow up to 50 percent of your vested amount. The money must be repaid over five years at an interest rate set for the particular plan. The advantage of this approach is that you are paying yourself interest instead of a bank.

If you are stuck on the down payment issue, try getting creative. Take a look at your options with your retirement accounts. Often you can borrow against them to get into a home.

Dan Lewis is with Great Western Mortgage - California mortgage brokers providing California home loans.

Related Tags: real estate, home, retirement, payment, house, save, 401k, mortage, percent, down, percentage

Your Article Search Directory : Find in Articles

© The article above is copyrighted by it's author. You're allowed to distribute this work according to the Creative Commons Attribution-NoDerivs license.

Recent articles in this category:

Most viewed articles in this category: