I would suggest that your car is a bit too expensive. You can re-establish credit with a $12,000 car as well as you can with a 21,000 car.
That being said, it is really not a good idea to raid your retirement account, especially to pay for a depreciating asset like a car. Maybe if you are about to lose your home to forclosure as a last ditch effort to save it it would make sense to raid the retirement account. Especially at your age, it really doesnt make sense. Yes, you are paying yourself interest, but if you lose your income you are stuck with less retirement savings.
I would suggest that if your credit has improved, try re-financing into a cheaper loan, or trade in your car for a cheaper one with a lower loan balance and lower interest rate. This may not be possible if you are "upside down" on the car loan.
Another thing with mortgage amounts. Does the bank say you can afford a 65K loan or have you determined that the payment on a 65K loan would fit your budget? What the bank says you can afford and what you can actually afford can be very different numbers. Usually the bank number is higher than what you can afford.
good luck!
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