401k to pay a large chunk on a house?

**ea1776** · 02-24-2010, 02:53 AM

I wouldn't do it.

#1. not the right attitude to have about retirement. If you have that attitude now, you may have that attitude 10 years from now. Retirement funds are for retirement, which is why there are hefty penalties for taking the cookies out of the cookie jar.

#2. no way. you aren't thinking about how the interest is tax deductible on the mortgage. You are also not considering how much tax-deferred capital appreciation you are missing out on by removing the 401k funds. you should be able to make the 401k grow at a significantly higher rate than the tax deductible interest on a mortage.

#3. uhhh, no.

Sorry, dipping into retirement for this reason would be a HUGE mistake. You guys are doing great financially. Why spoil the party?

**jIM_Ohio** · 02-24-2010, 03:29 AM

Originally posted by Paladin26 View Post

Hey guys new to the forum, looks like I may find out some intresting stuff here.

Heard mixed reviews on this so I will tell you the situation. Please read if you can as situtations change from person to person.

My wife and are 26 and 23 she will be a stay at home mom with our first baby that is due in Aug

She has no 401k and I have 25k vested. We are currently debt free, cars/student loans/credit cards all paid. The only thing we have is our mortage. My job matches 6% and I put that amount in.

We are selling our home and plan to "pocket" 25k on it (that is what we have left on the loan vs. what we sell it for). We are planning on buying a small town farm house from owners we know that would cost 65k (we live in Iowa so are prices are cheap for homes).

We have maybe a few thousand in savings but much will be used for the baby. If we do make a down payment of 25k on this house that would leave the principal at (roughly) 40k. If I used my 401k I would get around 15k (rough estimate) after tax and penalties. This would leave my loan at 25k. Again these are rough numbers. However if I was to draw from my 401k this would be near a 100$ difference per month vs not drawing from it.

Now I understand a few things about 401k.

1.) I will pay close to 45-50% worth of taxs ect.
2.) I am taking out money that is making money as the economy bounces back.
3.) I am dipping into retirement

A few things that counter that

1.) I am 26 years old I have plenty of time to build this back. (I know I know but it's true)
2.)With intrest on that extra 15k I will pay more then I would lose in 401k
3.) With inflation this money is worth much more now then it will be (although not counting lose of investments).

Help me out here because I am really leaning towards this.

1.) I am 26 years old I have plenty of time to build this back. (I know I know but it's true)
2.)With intrest on that extra 15k I will pay more then I would lose in 401k
3.) With inflation this money is worth much more now then it will be (although not counting lose of investments).

Change how you think about money.

1) You are 26, that money has time to grow, if you take the money out, it will not grow (real estate is break even).
2) The interest on the mortgage will not be higher than gains on 401k, assuming you can get a 5-10% return per year in 401k. Its not even close unless you show me the math.
3) With inflation, the money in the 401k will be worth MORE than it is now (this is a big flaw in how you think about money).

There has never been a 20 year period (NEVER as in zip nadda zilch) which has seen a negative real return (real return means even with inflation, the return is more money than you started with) in the stock market.

Being 26, the issue is I am guessing you have not been invested for 20 years yet. You need to always have a long term focus with retirement monies, because the last 2-3 years have been as cruel as they come volatility wise. Most years are not that extreme.

If we focus on your situation, we can fix other issues... for example- what is your gross pay and net pay relative to the budget when you move?

Not having savings is not the worst thing... if you have no retirement accounts you will be working for at least 30-40 years (meaning you might be working well past 75). I state this because you were only putting 6% into 401k to begin with, so the probability you could retire on or before age 65 on you just doing what you are doing now, is minimal IMO.

Focus on being smart with money- smart decisions imply do not pay 50% in taxes because you have a "need" now. What you see as a need is not a need from where I sit, so I use the word "need" loosely.

Be smart with money- if you created a budget where you saved 20% of your gross pay, you would not be in this situation to begin with. You would have surplus savings and a decent sized retirement account.

Be smart with money, spend less than you earn, and the #1 criteria for financial success is your savings rate. If you are only putting 5% to 401k, that savings rate is not high enough, and is probably the root cause of the reason you are considering robbing one account to get a short term need in the other.

Can I ask why you "need" to move?

**puck36** · 02-24-2010, 04:30 AM

Correct me if I'm wrong but I believe by taking money out of a 401k would be considered a loan. If you lose you job that loan would come due and you would have to be paid it back.

401khelpcenter.com - 401k Plan Loans and Withdrawals

**Beppington** · 02-24-2010, 07:22 AM

Do I have it right that you have only a few thousand in savings & a baby on the way?

The thing you need most right now is cash.

You should try to be debt-free, too, of course, at some point, but that pales in comparison to the need for cash to take care of your family.

Modern personal financial advice would say, wisely, that you should keep at least 6 months worth of living expenses in cash ... To me, with a baby on the way, I'd want that to be at least 1 year's worth.

Put that much in a checking account, savings account, or money market account, & then let's start discussing whether it's better to pay a mortgage payment or take from your retirement account (do not take from your retirement account!).

**creditcardfree** · 02-24-2010, 07:55 AM

No. Don't borrow or withdraw from your 401K. Ever.

You are borrowing from your retirement to save $100 per month plus interest. The truth is you can borrow money for houses, for student loans and cars, but you cannot borrow money to retire on.

I would would put the full $25K on the new home unless you don't have an emergency fund. If you don't pull some of that money to start one. Now is the time to increase your retirement contributions to at least 10% and gradually move to 15% or more.

**ActYourWage** · 02-24-2010, 08:57 AM

Don't use your 401k. Just earn more income and pay extra on the mortgage.

**Paladin26** · 02-24-2010, 10:05 AM

Thanks for the responses guys. Here is a little more info

The house that we live in is worth 135 (bought for 120 and owe 105k on it). We are moving to a house of the same size and style but is a very small town about 25 miles away thus it is 65k so we are saving money.

Our gross income is around 65-75k every year with my wife making about 15-20k of that. Since she will no longer be working we will have to move or risk being not debt free again (using credit cards for kids stuff). So rather then doing that we are moving to a small town and getting a killer deal.

I do get what you are saying on the 401k how it will mature in value over the years. But doesn't this negate the fact of how much I will be losing in paying intrest charges with the extra that I have to take out in princeapal? The way I figure is that it will cost me around 40-60k more in intrest on a standard loan. I did not think about the fact that some of this is a tax right off but still something to think about.

On the savings we should have around 5-15k in savings by that time. Keep in mind other then our house we have zero bills to pay so all this goes to savings. I think we are pretty well in control that way. But I was wondering how much should you save for a baby? Keep in mind my company has very good insurance so the cost of even a C section deliverly is under 300 dollars. So on the doctor bills and so on it should be moderate. Also this is the first grand child on both sides of the family. We are not counting on much (as in we do not want to take advantage of this) but we have already been gifted almost everything we need. Also my wife will breast feed (very adamant about this) and will be staying at home so wants cloth dipers. Of course I am not foolish enough to think the baby will cost us nothing since cloths and other things I have no clue about. But this should cut into some of the cost that are ussualy associated with babies.

Thanks for your help guys, just trying to learn all this kinda new with the budgeting/finance thing.

Nick

**jIM_Ohio** · 02-24-2010, 12:00 PM

Originally posted by Paladin26 View Post

Thanks for the responses guys. Here is a little more info

The house that we live in is worth 135 (bought for 120 and owe 105k on it). We are moving to a house of the same size and style but is a very small town about 25 miles away thus it is 65k so we are saving money.

Our gross income is around 65-75k every year with my wife making about 15-20k of that. Since she will no longer be working we will have to move or risk being not debt free again (using credit cards for kids stuff). So rather then doing that we are moving to a small town and getting a killer deal.

I do get what you are saying on the 401k how it will mature in value over the years. But doesn't this negate the fact of how much I will be losing in paying intrest charges with the extra that I have to take out in princeapal? The way I figure is that it will cost me around 40-60k more in intrest on a standard loan. I did not think about the fact that some of this is a tax right off but still something to think about.

On the savings we should have around 5-15k in savings by that time. Keep in mind other then our house we have zero bills to pay so all this goes to savings. I think we are pretty well in control that way. But I was wondering how much should you save for a baby? Keep in mind my company has very good insurance so the cost of even a C section deliverly is under 300 dollars. So on the doctor bills and so on it should be moderate. Also this is the first grand child on both sides of the family. We are not counting on much (as in we do not want to take advantage of this) but we have already been gifted almost everything we need. Also my wife will breast feed (very adamant about this) and will be staying at home so wants cloth dipers. Of course I am not foolish enough to think the baby will cost us nothing since cloths and other things I have no clue about. But this should cut into some of the cost that are ussualy associated with babies.

Thanks for your help guys, just trying to learn all this kinda new with the budgeting/finance thing.

Nick

You need to get some hard numbers attached to various statements.

First I see this

The house that we live in is worth 135 (bought for 120 and owe 105k on it). We are moving to a house of the same size and style but is a very small town about 25 miles away thus it is 65k so we are saving money.

Nothing in that sentence proves to me you are saving money.

When did you buy the current house?
What is the payment and interest rate on the first house?
Have you ever refinanced it?

What is the payment and interest rate on the possible house purchase?

I will come back to this issue in my conclusion, but on the surface, you need to do some detailed number crunching- doing the number crunching will show you why a 401k loan is probably not the right answer. Do not guess, do not do the easy thing and just do it. Run the numbers.

Here are further issues:

Our gross income is around 65-75k every year with my wife making about 15-20k of that. Since she will no longer be working we will have to move or risk being not debt free again (using credit cards for kids stuff). So rather then doing that we are moving to a small town and getting a killer deal.

Change how you think about money. You are projecting current cash flow into a new situation. Had you currently been saving 10-20% of your gross pay, taking a 15k loss in pay would not impact your situation. Change how you think about money and the drop in income would not be seen as a problem. The mortgage payment (show below) on a 50k mortgage will be lower than my car payments, rent or student loan payments when I grossed only 39k per year and I made that work. There is something in the budget (I suspect) which is causing a bigger issue.

do get what you are saying on the 401k how it will mature in value over the years. But doesn't this negate the fact of how much I will be losing in paying intrest charges with the extra that I have to take out in princeapal? The way I figure is that it will cost me around 40-60k more in intrest on a standard loan. I did not think about the fact that some of this is a tax right off but still something to think about.

You're asking me? LOL I am asking you the same question.
Run your numbers
you need the loan information asked above
how much is in 401k?
Is this a 401k loan (which charges interest) or a 401k withdraw (which will trigger taxes and penalties). Based on posts thus far, its tough to tell specifically what you asked about in first post. If you give us specific information, the answers will be much more specific.

On the savings we should have around 5-15k in savings by that time. Keep in mind other then our house we have zero bills to pay so all this goes to savings. I think we are pretty well in control that way. But I was wondering how much should you save for a baby? Keep in mind my company has very good insurance so the cost of even a C section deliverly is under 300 dollars. So on the doctor bills and so on it should be moderate. Also this is the first grand child on both sides of the family. We are not counting on much (as in we do not want to take advantage of this) but we have already been gifted almost everything we need. Also my wife will breast feed (very adamant about this) and will be staying at home so wants cloth dipers. Of course I am not foolish enough to think the baby will cost us nothing since cloths and other things I have no clue about. But this should cut into some of the cost that are ussualy associated with babies.

You don't need savings for a baby, because if you have 2k available, you will spend it, if you have 5k available you will spend it. If you don't have anything saved, you will make do. For example wife and I managed to go 18 months with TWINS before we needed to buy clothes. We made do, and we gross combined 2X as much as you do and still save 20% of income.

Thanks for your help guys, just trying to learn all this kinda new with the budgeting/finance thing.

This statement tells me as much as the rest of your post. I realize you are learning and **I hope** my posts don't come across like an ass. If they are, I apologize. I am trying to help.

My guess- and this is ONLY a guess- is you see money as a "cash flow". Money comes in on payday, goes out when bills come, and maybe some months there is a little left to take the Mrs. out for a night on the town once in a while.

You cannot think like this. Your #1 problem is how you view finances. The #1 factor to determining success is NOT elimination of bills (which helps cash flow). The #1 factor is your savings rate- the amount of money each paycheck you apply towards your bank account(s).

Here is your solution:
1) Post a list of the following here:
a) your expenses (monthly and yearly) in your current job situation and current house
b) your monthly income (weekly or monthly AND yearly) in your current job situation. If you can distinguish between spouse 1 and 2 it might help.
c) your current savings (401ks- IRAs -bank accounts)- the balances and how much you add to them each month.

The list of income -expenses and savings is the key to everything. Its possible you are over spending in some areas (insurance, groceries or something else). Maybe you have high car payments we don't know about (we as in the people helping you).

2) Create a new budget (list of expenses) with some new features.
a) PAY YOURSELF FIRST. I suggest you are good person and trustworthy husband and for this you deserve to be paid 20% of what you gross. Put 10% into savings and 10% into retirement accounts for now, and once savings improves, 15% to retirement and 5% to savings.
b) savings can be defined as paying down mortgage, putting money in the bank, investing in other properties, or making current property worth more. All improve balance sheet, just depends what you want to do with money.

3) Create a financial timeline in spreadsheet format
carry numbers thru to see what a situation costs you (in current cash flow)

If you have 50k in 401k, and put in $2500 year (5% of $50,000) and that money earns 8% per year (on average) you will have 800k invested in 401k in 30 years. This "cost" you about 125k in contributions over last few years and next 30.

If you put in 10% of pay ($5000 per year) that same 30 years and 8% gives you 1.1 M after 30 years. The cost on this is about $200,000 over 30 years.

We can talk about earning 8% on average later, but that is a good baseline for numbers. Put that in a spreadsheet if you are able. I did it to make the numbers for this post, its good to have one so you can run various if then situations.

On the house front, if you have a 65k mortgage and put 15k down (23%) 50k financed over 30 years (5% rate on loan) is a payment of $268 per month. In 30 years you will pay 50k in principal and $46k in interest. The cost here is 46k plus other costs (more later).

If you had no mortgage, you would be "saving" yourself the 46k in interest (what you posted above as thinking you want to save). The COST of saving that money is what needs to be examined.

If you had 50k in 401k (assumption I made above for the 800k and 1.1 M numbers) and took a 401k loan out, you would have about a 6-7% interest rate on the 401k loan (it would be higher than the 5% mortgage rate) and a fee or two to process 401k loan. If you are going to borrow money, borrow from a bank for legal and financial reasons. Don't save 46k (cost) of mortgage interest to shift to a 401k loan.

If you have 50k in 401k and took a DISTRIBUTION, you would be paying the following:

1) 15% or 25% federal income tax (the distribution would be taxed at highest marginal bracket or put you into higher bracket.
15% is a $7500 tax
25% is a $12,500 tax

2) 10% penalty for early distribution
$5000

3) state taxes (what is your state tax rate?)

Federal taxes and penalties range from $12,500 to $17,500.
You paid this much to federal government to save you $46,000 in mortgage interest over 30 years.

Give me a budget and I could probably make it a wash (for example if you pay $175 extra on the $268 30 year mortgage payment, you would pay only $17,600 in interest which is less than the penalties and taxes owed for cashing out 401k).

The issue is whether you can afford a $450 mortgage payment. My comment is that if a payment that high on a 60k income hurts you, then there is a problem in budget we don't know about. I had car payments ($420) and rent payments ($700) (at the same time, plus $800/mo in student loans) on a 39k income when I graduated. The issue is all the expenses you have, not the house or 401k cash out.

If you cashed the 401k out, and contributed 15% ($7500/yr) you would have 900k in 30 years. If contribution was the same amount as now ($2500/yr) the 401k would have 305k.

Meaning you have a higher cost to have same retirement balance if you tripled your contribution now and cashed out the 401k now. The 900k cost you $7500/yr for 30 years (Cost you $225,000 to make $900k). To have 800k in previous example (leaving 401k untouched) cost you $75,000 (plus whatever you contributed already to get the 50k in account now). That might mean it cost you $125k to have the 800k invested.

The mortgage itself "costs" you 93k (50k Principal plus 43k interest). The mortgage has a much lower cost to keep than the 401k investment or cashing out the 401k to remove the mortgage.

My summary is be specific in the information you give, change how you deal with money, and you will see what most of us here already know- the taxes and penalties make this a slam dunk to keep money in 401k and focus on the real problem- which is control your money so it does not control you.

I think most of this is cash flow- but we won't know that for sure until you show us a budget.

Best of success to you.
jIM

**jIM_Ohio** · 02-24-2010, 12:19 PM

If you add up the costs of cashing out the 401k in my example above and also added in the costs of retirement funding and similar, here is the balance sheet:

Carry a mortgage
costs you $46k in mortgage interest (this cost can be reduced if you pay extra to mortgage)
costs you $125k in 401k deposits

Total cost $171k over 30 years.

what you get in 30 years
Paid off house worth 65k
401k/ retirement account balance estimated at 800k.

If you cash out 401k now
Costs are $17,500 in federal taxes and penalties
Costs you $225k in 401k deposits

Total costs are $242k over 30 years
if there is a mortgage on the "401k cash out plan" those costs are additional to what I listed.

In 30 years you would have
house worth 65k
401k balance of 900k

If you are thinking of money in a "cash flow" sense, the second situation will actually cost more cash (tie more cash up) now and in 30 years.

**Paladin26** · 02-24-2010, 04:08 PM

Thanks for the info man. I will try to answer your questions.

This is a withdraw I am thinking about not a loan. If I did a loan and ever lost my job I would be screwed.

Not having savings is not the worst thing... if you have no retirement accounts you will be working for at least 30-40 years (meaning you might be working well past 75). I state this because you were only putting 6% into 401k to begin with, so the probability you could retire on or before age 65 on you just doing what you are doing now, is minimal IMO.

This 6% is matching dollar for dollar by my company and has averaged me well over 15% even considering our state of our country. I have made 23k in 3 years with putting in 6%. I would think that retiring would be pretty easy before 65. Could be wrong though?

When did you buy the current house?
What is the payment and interest rate on the first house?
Have you ever refinanced it?

What is the payment and interest rate on the possible house purchase

2006 we bought it
$949 escrowed so total (utilities are around $175 which would be the same for the next house). Other expenses for the house are DSL 25, cellphones 20 (I work for Verizon Wireless thus they are cheap), and TV 10 a month. We also pay 10% + tithe to our church on net income. I can figure gas, food ect if you want.
Never have refinanced.
Our loan is sitting at around 105k @ 5.75% intrest.

Change how you think about money. You are projecting current cash flow into a new situation. Had you currently been saving 10-20% of your gross pay, taking a 15k loss in pay would not impact your situation. Change how you think about money and the drop in income would not be seen as a problem. The mortgage payment (show below) on a 50k mortgage will be lower than my car payments, rent or student loan payments when I grossed only 39k per year and I made that work. There is something in the budget (I suspect) which is causing a bigger issue.

I agree I may need to change you bring up some pretty good points. But please understand I think I am doing well. We are in our mid 20's and debt free other then the house. I think I am doing pretty good. Maybe I am wrong but I think having no car payments, no credit cards, no student loans is better then having a bit in savings. I know this can be dangerous and now that we just paid everything off we will save. My logic is to pay off the debt that we had (not much in CC's some in cars, and some in student loans) and then save.

You're asking me? LOL I am asking you the same question.
Run your numbers
you need the loan information asked above
how much is in 401k?
Is this a 401k loan (which charges interest) or a 401k withdraw (which will trigger taxes and penalties). Based on posts thus far, its tough to tell specifically what you asked about in first post. If you give us specific information, the answers will be much more specific.

27,628 at the moment
No, again I will not do a loan since it could be risky if I was to get fired ect.

Here is your solution:
1) Post a list of the following here:
a) your expenses (monthly and yearly) in your current job situation and current house
b) your monthly income (weekly or monthly AND yearly) in your current job situation. If you can distinguish between spouse 1 and 2 it might help.
c) your current savings (401ks- IRAs -bank accounts)- the balances and how much you add to them each month.

Posted above I can get you more specs on gas and food which will change very soon with my wife staying at home.

Monthly income is commisioned based I grossed 48k last year I think it worked to around 2,600 take home per month. I will check that our to be sure. My wife now is out of the picture.

Current savings moves pretty much only to 401k. I have some money in the bank but that is running lower to prepay insurance for the next year and make sure I have every little debt or bill paid before going into having a baby.

\/////////////////////////////////

So I read what you said and it is starting to make since. I am getting there guys. lol

**jIM_Ohio** · 02-24-2010, 07:15 PM

Your budget needs more items...

Mortgage
house insurance
car insurance
car payments
gas for car 1
gas for car 2
groceries
eating out
cable
gas for house
electric
home phone
cell phone

any recurring monthly expense (dry cleaning etc...)

list them 1 by 1, then add them up.

$2600 average gross income... what is lowest this has ever been?

**Paladin26** · 02-24-2010, 09:45 PM

As luck would have it I have all the figures here.

Mortgage
house insurance
car insurance
car payments
gas for car 1
gas for car 2
groceries
eating out
cable
gas for house
electric
home phone
cell phone

any recurring monthly expense (dry cleaning etc...)

The basics

House payment - 950
Home insurance - 0 figured into my escrow
Car insurance - 454 every 6 months (75 a month)
Car payments - 0 paid off both of them
Gas - Monthly 200 for both cars
Groceries - 250
Eating out - 200 (including lunches at work)
Cable - $10 + 25 for new = 35
Gas for house - All elertric see below
Elertic - 110 average
Home phone - 0 don't have one
Cell phones - 20
Tithe to church - varies but around 200 a month

Other stuff

Credit monitor/checking - 12
Water - 45
Plates for cars - Paid yearly but around 30 a month
Netflix - 8
Misc - Cloths, shoes, hair cuts for both of us - 50-100 (75 to figure)

I figured 2,210 unless I missed something.

This is of course at our current house which we are selling. The payments are set to go down on our other house by around 500-700 dollars.

Income - Net (take home)

A low month for me is 2,220
A high month is 2,900
My year average (2009) was 2,638 averaging all months
My 3 year average is 2,551
Also tax return is around 4k-5k per year = 375 a month extra.

Right now I got a raise of around 800 dollars a year and am pacing higher then last year by around 100+ take home a month. I will not count on this 100+ extra per month just saying.

With considering this my income would be 3,071 w/ the raise/last years average/tax return per month take home.

Also my wife is working for a few months before having a baby THEN will stay home. She will be bringing in and EXTRA 800 per month for 2-4 months. We plan to use this pretty much only for savings for the baby.

Right now we are sitting on around 1,000 dollars in "savings" with all "debts" paid. We will be getting 3 paychecks in by next Friday.

Insurance will be due (6 month prem.) by mid April
Plates have to be put on new car - 694 (w/ tax included for buying it) in one month.
Apprisal of our home - 300 due when we do it (around 1-3 months)
House will need to be paid for March - 950

Other then that everything is paid, those are the only three bills that I would say are bigger.

Hope that helps!

**zetta** · 02-25-2010, 06:27 AM

But please understand I think I am doing well. We are in our mid 20's and debt free other then the house. I think I am doing pretty good. Maybe I am wrong but I think having no car payments, no credit cards, no student loans is better then having a bit in savings. I

Congrats on what you've accomplished so far. $26k is a good start toward retirement -- don't blow it by taking the money out.

This 6% is matching dollar for dollar by my company and has averaged me well over 15% even considering our state of our country. I have made 23k in 3 years with putting in 6%. I would think that retiring would be pretty easy before 65. Could be wrong though?

15% return is exceptionally good -- don't count on it over the long haul. Use 8 or 9% for planning purposes. It is not easy to retire before age 65 -- you need to be saving at least 15% toward retirement if this is your goal.

Play around with this calculator -- I think you need to increase retirement savings to 15%.
Bloomberg.com: Calculators

If you pull money out of the 401k to pay more toward the new house, you are essentially giving up a return of 8-9% to avoid an interest rate of 5-6%. Check out this calculator to see the effect:
Prepay vs. Invest
Loan Comparison - Refinancing

**jIM_Ohio** · 02-25-2010, 06:48 AM

Originally posted by Paladin26 View Post

As luck would have it I have all the figures here.

Right now we are sitting on around 1,000 dollars in "savings" with all "debts" paid. We will be getting 3 paychecks in by next Friday.

My initial reaction was the above post was excellent, the comment I left is a symptom of the problem.

You need to stop thinking about paycheck to paycheck. Whether you received 3 paychecks in next 10 days or 1 paycheck in next month, it should not matter. "Just sayin" LOL

Here is what I would focus on:

Monthly and annual expenses is $2240/month and $27,000 year (rounded).

The basics

House payment - 950
Home insurance - 0 figured into my escrow
Car insurance - 454 every 6 months (75 a month)
Car payments - 0 paid off both of them
Gas - Monthly 200 for both cars
Groceries - 250
Eating out - 200 (including lunches at work)
Cable - $10 + 25 for new = 35
Gas for house - All elertric see below
Elertic - 110 average
Home phone - 0 don't have one
Cell phones - 20
Tithe to church - varies but around 200 a month

Other stuff

Credit monitor/checking - 12
Water - 45
Plates for cars - Paid yearly but around 30 a month
Netflix - 8
Misc - Cloths, shoes, hair cuts for both of us - 50-100 (75 to figure)

Your monthly and annual income is
$2551/month and $30,000 annually. I assume that is after taxes?
can you list gross and net as specific line items?

A low month for me is 2,220
A high month is 2,900
My year average (2009) was 2,638 averaging all months
My 3 year average is 2,551
Also tax return is around 4k-5k per year = 375 a month extra.

Here are flaws as I see them- at this level

1) you tithe more than you pay yourself. $200/mo is 10% tithe
you do not put 10% anywhere to 401k, IRA or savings. I am not suggesting you tithe less, but you do need to pay yourself more. Make sense?

2) If wife's income is not factored into anything I posted in this post, then you could easily downsize house, save $400/mo+ on the payment and be coming out ahead. Nothing I see suggests tapping the 401k is a good idea.

3) If you keep same job, tapping 401k might not be allowed (you would need to sever employment to access the money). Have you looked into details of this?

401k to pay a large chunk on a house?