Saving/Borrowing For A House

[SomeDay]

I filed bankruptcy in 2009 on credit cards debt of around $90K, ( just 5 years after college and the reason was I spent every penny I got during my first job).
I lost my job the same year, 2009.

I moved to California in 2010 and lived with my family for 8 months without a job.
I finally got a job at the end of 2010. Starting salary was $60K and now is 80K.
In 2012, I got married. Both of us didn't have much money, no saving at all.
In 2013, I started putting some pre-tax money in the 403(B) retirement account.
In 2014, I maxed out $17,500 limit into this 403(B) account and was impressed by year end of how much earning the account made from the stocks. The same year 2014, I opened the 457(B) account also from work and maxed out the limit allow per month into this account. I also chose all the high risk/high return stocks.
Also, my company requires each employee puts in 8% pre-tax automatically into the retirement account each month.

So I have 3 pretax saving accounts for retirement.

By end of 2014, my two retirement 403B and 457B accounts above had a total value of $37,000. I was so impressed that in less than 2 years, I was able to save and earn $37K in saving. I look at the accounts everyday after the stock market closed.

My wife brings home $2,400 a month.
Instead of getting an apartment of around $1,500 a month. We decided to rent this place that a friend of ours built in his back yard for only $800 a month and we don't pay gas, electricity, and also we get free wifi internet from him. This place is like a mobile home with 1 bed room, a kitchen, a bathroom and a front yard. This place is small but because we'd like to keep our saving accounts active, we are okay to pay less in rent for big saving.

Our plan is by summer of 2016, the two 403B and 457B accounts will have around $100K. We will borrow $50K from this 2 accounts and we temporary stop making contribution into the accounts from my paycheck for the second half of 2016 to save the cash. Either by end of 2016 or early 2017, we will have around $100K from $50K borrowing from the retirement accounts and $50K cash saving. We will make a 20% down payment for a $500K house.

How is this plan to you? Thanks for any advices you might have

[Fishindude77]

Way, way, way, way, way too much house for you, and a horrible way to come up with the down payment in my opinion.

You need a $150,000 house and a method to come up with 20% down without touching your retirement money.

[Retired To Win]

...Our plan is by summer of 2016, the two 403B and 457B accounts will have around $100K. We will borrow $50K from this 2 accounts and we temporary stop making contribution into the accounts from my paycheck for the second half of 2016 to save the cash. Either by end of 2016 or early 2017, we will have around $100K from $50K borrowing from the retirement accounts and $50K cash saving. We will make a 20% down payment for a $500K house.

How is this plan to you? Thanks for any advices you might have

It's a bad plan. Bad housing intent. Bad housing financing strategy.

You live in an area where you could rent an apartment for $1500 a month. That leads me to think that in that same area homes are for sale at a whole lot less than $500,000. You need to lower your home buying sights and aim for something where the mortgage would not be too much more than that $1500 a month.

And you are going to strip yourself almost financially bare in order to make a downpayment on a half-million-dollar house??!! What if you have a financial emergency? What if you end up out of a job? What's your plan going to be then? Please leave those retirement accounts alone; if you ever touch them at all do it because you're in a financial emergency with no other options than to dip into your financial future to survive your financial present.

Good luck.

[ReallyBoredMan]

I work as a Mortgage Underwriter and I see this scenario or something similar all too often.

People think that since can liquidate your retirement accounts that they should in order to qualify, by either paying off debt and/or lowering the loan amount.

When I purchased my current house I made sure that I or my GF could make the payments (right now I'm living with my GF, and she is helping with some of the bills), so if something were to happen to me or my GF we would still be able to make the payments.

I do agree with Fishindude77's comment about a cheaper house, but there is nothing wrong with starting with at least a cheaper house. You would be able to save more money with a cheaper mortgage payment and use that money you saved, along with the sale of the house (when you have enough equity) for a down payment of the house you want.