401k Withdrawal for Down payment

**bjl584** · 11-18-2010, 08:35 AM

I would advise against borrowing against your 401K to buy a house. Keep living at home and save up for a house downpayment. If that isn't an option, then rent an apartment and save up for a downpayment on a house. Get a second job if you have to if that is what is needed to make this a reality. Also, hold off on buying the brand new Mazda and get your self a nice used vehicle. Take the money that would have been your payment and put it in the bank for your house downpayment.

**disneysteve** · 11-18-2010, 08:40 AM

ABSOLUTELY NOT!!! Sorry to be harsh but that is a horrible plan. You have credit card debt, student loan debt and are looking to add car debt. You didn't say so but somehow I suspect that proposing will involve more debt to get a ring. And with all of that mess, you think you can afford to buy a house? You need to get your spending under control, pay off your existing debts, do everything possible to not take on any new debt and pile up cash in savings. You have 20K saved which is fantastic and I commend you for that, as well as for having a Roth and 401k.

Take $4,000 or $5,000 and buy a car with CASH. No loan. No payment. Come up with a budget that involves spending no more than 80% of your income with the other 20% going toward savings. Once you are doing that, you can start looking for an affordable apartment where you can comfortably pay the rent while continuing to save for a house downpayment in a few years and keep funding your retirement accounts.

**flippinterp** · 11-18-2010, 09:27 AM

I also would advise against borrowing against your 401k for the downpayment on your house- after all, you will someday need that money for retirement. In your situation, I think the biggest priority should be the credit card balances. You didn't specify the interest rate on the cards, but that's a burden that you don't need. With your income, it shouldn't be too hard to eliminate that debt. The student loans don't concern me, as they are at such a low interest rate. Continue making the minimum payments on those, while focusing on the credit cards. I agree with others in recommending a slightly used car for a lower price. While paying cash would be ideal, limit the length of the loan to 3 years max if you absolutely must finance the car NOW so you can drive to work.

You mentioned proposing to your girlfriend, and with that will come a wedding and associated expenses. While you can certainly start saving for the house downpayment now, I would recommend holding off on the actual purchase until your personal life is a bit more settled. The two of you can always rent an apartment for a year or two while you both look at houses and save for the downpayment.

**littleroc02us** · 11-18-2010, 09:27 AM

I agree with everyone above. If you do this, you will put yourself deeper in debt and out of control. Get your life under control by paying off your debt first and buy a used car for a very minimal price. Believe me the last thing you want is to buy a house right now. Be patient and not in such a hurry to do everything. There will always be another house on another block. When you don't have any debt your income is your best tool, but when you have debt all you do is worry.

**dczech09** · 11-18-2010, 10:42 AM

I concur with everything just said. Put it this way: borrowing from your 401k and having to pay taxes is the equivalent of borrowing at 25% to 35% (depending on your tax bracket). Use your $20k in savings to pay off the credit card completely, buy a used car for cash, and work on paying down the student loan debt. Keep a few thousand in cash for emergencies, set up a budget, find a cheap apartment, and pay off all debts. Then build up savings for a down payment on a house that you can buy in the future.

Also, borrowing from your 401k will bar you from contributing for 6 months and getting no employer match. Do you have any idea how much this borrowing will cost you in the long run? You will lose a lot of money and growth by doing this.

**dczech09** · 11-18-2010, 10:47 AM

PS with that $20k cash you have, you should pay off all credit card debt and student loan debt. Buy a used car for like $5,000 and have a few thousand leftover for emergencies. Build you emergency fund to about 6 months of expenses, live on a budget, and save for the down payment. If you follow this advice, you will be rockin' in about a year or so. You have the opportunity to be debt free, so take it!

**jIM_Ohio** · 11-18-2010, 11:47 AM

You need some personal finance work.

Tapping retirement accounts should be a last resort, not your primary option.

I would focus on the basics

1) spend less than you earn
2) try saving 20-40% of gross pay when living with parents

If you struggled with putting 6% into 401k, your marriage will struggle financially until you focus on #1 and #2 above.

**wincrasher** · 11-18-2010, 05:09 PM

Well, if you are going to destroy your financial life - GO BIG!

After you've demolished your retirement savings and get up to your eyeballs in mortgage debt (be sure to pay full price in a declining neighborhood), make sure you buy a real expensive car - a Cadillac Escalade or Chevy Corvette would be awesome. Be sure to get a few speeding tickets or maybe a DUI.

Then, take your fiance out for a weekend at a fancy hotel. Leave the condoms at home and get her good and knocked up. If you're lucky, you'll have twins. That would be $250k needed for college!

Then you'll be all set.

**nick__45** · 11-19-2010, 11:21 AM

If you get along with your family, I don't see that problem with living at home. A home is a place to live and may serve as an investment if done correctly. Therefore, living with your parents for free is the best investment.

If your girlfriend won't marry you because you live at home to save money for the future, you should tell her you'll save and plan on finding another person that is smarter in personal finance. Why buy a cow when you can get free milk and don't have to worry about mad disease. I don't get along with my parents so it doesn't work for me. Still, I regret my situation because it is truly the best investment to have multiple generation under one big roof. It is safer and cheaper to heat and cool one big house verse 2 or however many big houses.

**nick__45** · 11-19-2010, 11:23 AM

The only retirement account I want to tap is the Social Security. I want to tap it because I know in 20 years, it won't be there when I retire.

**bjl584** · 11-19-2010, 11:25 AM

Originally posted by nick__45 View Post

If you get along with your family, I don't see that problem with living at home. A home is a place to live and may serve as an investment if done correctly. Therefore, living with your parents for free is the best investment.

If your girlfriend won't marry you because you live at home to save money for the future, you should tell her you'll save and plan on finding another person that is smarter in personal finance. Why buy a cow when you can get free milk and don't have to worry about mad disease. I don't get along with my parents so it doesn't work for me. Still, I regret my situation because it is truly the best investment to have multiple generation under one big roof. It is safer and cheaper to heat and cool one big house verse 2 or however many big houses.

I disagree. Time to grow up, move out, and learn about the real world. OP should get his finances in order, get is own place, and start saving and building toward a life and a future.

**nick__45** · 11-19-2010, 11:34 AM

Originally posted by bjl584 View Post

I disagree. Time to grow up, move out, and learn about the real world. OP should get his finances in order, get is own place, and start saving and building toward a life and a future.

Actually, it takes a bigger man to stay at home in the American culture, that has been brainwashed that we have to man up (or grow up if you're a lady) and get your own. The retail industries as well people on the take want you to buy 2 or everything. But in reality, it is best for your finance and the environment to have multi-generations home. If you take 2 people with same financial stability, the person staying at home and save money is much smarter in managing money. The only people that want you to move out are the people that want to sell you something; i.e. a house, a mortgage, a furnace, a TV, etc.

Under your approach, OP needs to move out and add an rental payment of probably 800 dollars or more each money. Is that really smart? Rent is plain stupid if living for free is an option. But in a culture where TV makes a the rule, talking sense to people is like fighting a war on Drug & Terror.

**nick__45** · 11-19-2010, 11:36 AM

Originally posted by bjl584 View Post

I disagree. Time to grow up, move out, and learn about the real world. OP should get his finances in order, get is own place, and start saving and building toward a life and a future.

Yeah, let's get the finance in order and building toward life and future by wasting money in rent or possibly buying a house he can't afford to even put money down on. Yeah, that's really smart and mature.

**bjl584** · 11-19-2010, 12:23 PM

Originally posted by nick__45 View Post

Yeah, let's get the finance in order and building toward life and future by wasting money in rent or possibly buying a house he can't afford to even put money down on. Yeah, that's really smart and mature.

If he gets his finances in order BEFORE finding an apartment as I suggested, then he will have no problem making rent, paying down his debts, and saving up for a house.

It would have been really easy for me to keep living with my parents indefinitely, but I realized that I wanted to build my own life and my own legacy. In my case, this was best served by buying my own house and taking ownership for my own life and my own destiny. I disagree with your assumption that only brainwashed people that have caved to a consumption culture and lifestyle are the ones that are somehow suckered into moving out. I moved out, I am not mired in debt. I do not have a house full of luxury items and unnecessary possessions. I budget, I save, I invest, I live below my means. All while being independent, self reliant, and while building my own life. If you want to advocate living at home forever or for an extended period of time, then that's up to you. But I strongly believe that there comes a time when a person must leave the nest and take responsibility for their own life.

401k Withdrawal for Down payment