457 as House Down Payment?

[put me in coach]

Hello,

We have never owned a home. I am just beginning to research the possibilities of buying. We rent in a HCOL area, in our late-30s with 1 kid.

We have about $210,000 in retirement accounts, and we make about $200,000/year gross combined. We max out our roths and 401k/457. Given the stability of our jobs and situation, we only have about $7.5k in more quickly accessible savings.

I will likely transition jobs which means I can take out ("elect a refund of my contributions") from the $45k in my 457 as a direct deposit or a rollover. Is this advisable to help us pay for the house? Should i roll it over to another account first?

Thanks for your help! Let me know if you need more info.

[Jason95357]

Negative on using retirement money for a down payment.  I'd recommend following one of the trusted financial plans to address deficiencies, including not having an appropriately sized Emergency Fund (EF), before you'd start to save for a house and purchase.  No one knows what inflation and mortgage rates may hold, but at least in the near-term things are pretty bad (7% and climbing).  I'd recommend you focus on saving for your 3-6 month EF, and then save for a down payment.  If you haven't already, look to trim your expenses by getting on a strict budget and/or increase your income if possible.

Here is one such trusted financial prioritization plan:
https://www.bogleheads.org/wiki/Prioritizing_investments

Another trusted resource for home buying:
https://www.bogleheads.org/wiki/Owning_vs_renting

[Commoner]

I know this is an old thread, but I thought I'd toss in my two cents.  I run against the grain on this issue.  I used my 457 funds to purchase a home and it was a fantastic decision. 

The positives:

- Buying a home is not a bad investment if done correctly.

- My home value increase has beat the SP500 rate of return since September of 2019.

- Based on my Redfin home estimate, my home has increased around 15% annualized since the purchase.  Comparatively, the SP500 has increased around 8% annualized since then.

- Essentially, my home price increase has almost doubled the increase in the SP500.

- I was able to build money in the 457 pre-tax.  Essentially using the 457 allows for you to save for your home at a higher rate.

- At my job we can use up to $50,000 from our 457 account for a down payment/improvement.  Saving $50,000 in a pre-tax account like a 457 will allow you to get to the $50,000 much faster than if you were saving the money in a regular account, which would be post-tax money.

- Unless you are flipping real estate, you will likely be in your house for a long time.  If by spending the extra money from your 457 allows you to buy a better home (and you will be happier in that better home than you would in another), it is worth it. 

- You spend so much time in your home... the mental stress of a crummy home, and any potential remodel/fixes that need to be done, are no joke.  If that little extra money from your 457 gets you a better house, use it.



Long story short, I greatly benefited from using my 457 to purchase a home.  I was able to save money in the 457 faster than I could in a regular account, my return on my $50,000 has beat the SP500 (so far), and I love the house I got. 

[Finances_With_Purpose]

I'll add in here, as I have a 457: this is a terrible idea.  You need to figure out whether your 457 allows you to withdraw penalty-free as soon as your job ends.  Mine does.  So it's the world's most flexible tax-deferred plan.  You can't beat it.  Take from the 401(k) before a 457 - and I don't recommend either. 

I had most of the down payment saved up but took a smidge out of a 401(k) to finish it up, and I still regret doing that.  I can't get that space back. 

I say that even though my home equity, too, has outpaced my S&P 500 as well, but that's only because of the ridiculous and unsustainable home-price growth (in a hot area in a hot market), especially with inflation, not because housing suddenly became a much better investment overall; it'll likely dissipate over time.  (The fact that that just happened also implies that it's even more unlikely to happen again soon, meaning that you're far more likely to do a lot worse than we did, and maybe even see your values go down after you buy.)  Stocks have also gained, and 10-15 years out, I expect the tax-deferred stocks to be the clear winner. 

Besides, home equity isn't a real return unless or until you sell, so it doesn't help you in your retirement goals unless you plan to leave later on.  I spend money on the house, constantly.  It costs me money. 

So no, don't buy more house.  Save longer.  Especially now - you're in a down-trending housing market, with high rates on savings, even short-term; it's a great time to be a saver.