Using Retirement Savings for Your Down Payment
- 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.
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
Recent articles in this category:
- 5 Reasons to Buy Jasper Real Estate
Jasper is a small town in North Georgia and it is growing rapidly. Since North Georgia Foreclosures - Ellijay Real Estate
Ellijay Georgia has always been known for it's outdoor activities and seasonal festivals. Downtown E - How to Deal With Blocked Drains
A blocked drain is an occurrence that happens eventually to all households. You may have experienced - The Benefits of Hiring a Plumbing Consultant
Your dream home may not always be brand new, with fresh paint and home essentials. There are certain - The Worst Mistake You Can Make When You Apply to Rent a Home
A whole new class of people has become renters and potential renters in America during the last thre - State of Individual Real Estate Markets
Everybody is well aware of the hit that the real estate market has taken over the past three years. - Thoughts on Avoiding the Landlord Trap
I've heard several people say they would never invest in a multifamily rental property because they - An Idea to Increase the Bottom Line of Your Investment Property
Are you pretty sure that you've already maximized the income coming from your property? If you've cl - Finding the Value of a Piece of Investment Real Estate
There is a lot of confusion about how much investment property is really worth. We'll look at three - Arkansas Land For Sale - Search Engine Optimization and Your Website
If you have Arkansas land for sale and are interested in advertising it on your website I have a few
Most viewed articles in this category:
- How High Did Home Prices Really Go
The U.S. Census Bureau released data on Tuesday that revealed where the nation's hottest markets wer - New Homeowners Tips for Household Safety
With so many items on their ¡°buying a home¡± checklist, few homeowners take into considerati - Truth About VA Foreclosures
Many people now days are finding themselves out of work and not being able to make the mortgage paym - Avoid Rookie Real Estate Investing Mistakes
When Robert Kiyosaki, author of the Rich Dad book series, bought his first property he was, of cours - Finding The Perfect Roommate On Craigslist
Craigslist, Roommates, and The Concerns Craigslist is "great" when it comes to looking for housing - The Forgotten Secret To Selling Property - Simple, Quick And Cheap
Why spend big dollars trying to get people to drive a long way to see your house, when your best pro - Get Amazing Results Selling Real Estate Online
This is the age of the internet. Why not take advantage of the widespread use of the internet to ad - Dallas Real Estate Information
In the United States, Dallas is considered as the second leading state according to the area. If any - The Largest Private Equity Indian Real Estate Deal
In the largest private equity deal won by the real estate sector, Morgan Stanley Real Estate has inv - Fractional Real Estate Ownership
Fractional ownership of vacation ski condos is growing in popularity. Park City Utah a popular ski t
