Author Topic: "Borrowing" from IRA for cash purchase - Feedback appreciated  (Read 517 times)

DaMa

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"Borrowing" from IRA for cash purchase - Feedback appreciated
« on: November 24, 2018, 01:45:50 PM »
DH and I are buying a house.  We put in a cash bid and beat out the other bids that had mortgage contingencies.  We will need to take $80k from Roth and/or Trad IRAs.  We will either sell our current home or borrow against one of the houses (if we keep current home for rental) and return money to the IRA.   Assuming I have the money to put back in the IRA within 60 days, what is the best way to do this?

Roth:   $5500 contribution this year, $52.5k my contributions in prior years, $10k gains
Trad IRA:  $200k

I know I can that this year's $5500 contribution out and put it back by April.  Can I take the other $52.5k from Roth and put it back in 60 days?

I would then take the remaining $22k from my rollover IRA -- BUT, I just added to that rollover IRA from a former employer 401k this year. Does that mean I can't do the 60 day rollover on that account?  If yes, would that limit apply to a separate rollover IRA at another company (one at Vanguard, one at Fidelity). 

Is there anything else I should know?

I want to make sure I know as much as I can before I call Vanguard.  Thank you for input!


waltworks

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Re: "Borrowing" from IRA for cash purchase - Feedback appreciated
« Reply #1 on: November 24, 2018, 04:54:36 PM »
Just go get a mortgage. You didn't put a mortgage contingency in the offer, but that doesn't mean you're not allowed to get one.

-W

DaMa

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Re: "Borrowing" from IRA for cash purchase - Feedback appreciated
« Reply #2 on: November 24, 2018, 07:09:06 PM »
Thanks, but I'm not going to get a mortgage -- no reason to pay all the extra costs.  I can get a HELOC after the fact with $0 fees, and I'll only need that if we decide to keep the current house for a rental.

SwordGuy

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Re: "Borrowing" from IRA for cash purchase - Feedback appreciated
« Reply #3 on: November 25, 2018, 09:33:52 AM »
Thanks, but I'm not going to get a mortgage -- no reason to pay all the extra costs.  I can get a HELOC after the fact with $0 fees, and I'll only need that if we decide to keep the current house for a rental.

Or if you can't sell the old one as fast as you want?

waltworks

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Re: "Borrowing" from IRA for cash purchase - Feedback appreciated
« Reply #4 on: November 25, 2018, 10:34:12 AM »
You can get a mortgage with $0 in fees too (hell, you can get paid to take out a mortgage), as long as you're ok with a bit higher rate. Seriously, it's a smarter move than this IRA-raiding exercise.

I'd be really wary of having my *entire* net worth tied up in 2 houses, even for a short period of time, but I guess the ship has sailed on that one. Taking money out of IRAs to accomplish this seems A) extra risky given that you're taking liquid assets to further increase the crazy concentration in non-investment RE and B) a PITA with potential tax consequences if you screw something up.

-W

DaMa

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Re: "Borrowing" from IRA for cash purchase - Feedback appreciated
« Reply #5 on: November 25, 2018, 12:28:58 PM »
I'm not familiar with $0 fee mortgages.  I thought those were basically adding the closing costs to the mortgage, which I don't want to do.  Can you suggest a lender to look at?  Would I be able to put it together in 2 weeks?

And this is less than 20% of our net worth -- both houses.  We just happen to have only 20k in cash and the rest in retirement accounts. 

 

partgypsy

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Re: "Borrowing" from IRA for cash purchase - Feedback appreciated
« Reply #6 on: November 25, 2018, 01:32:31 PM »
If you are going to keep originally home and pay off with a heloc, helocs have higher interest rates than mortgages. If you worry about not selling the house in time you can get a bridge loan. Otherwise the fees u will pay for doing this and not paying back, doesn't make sense to me. I think u need to figure out what your actual plan is. If u are going to pay back the money with a heloc, why not just get the HELOC and skip the IRA step completely?
« Last Edit: November 25, 2018, 01:43:26 PM by partgypsy »

GizmoTX

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Re: "Borrowing" from IRA for cash purchase - Feedback appreciated
« Reply #7 on: November 25, 2018, 01:44:07 PM »
You can't put IRA money back in. That's a big loss of tax-free compounding potential.

A mortgage is less expensive. Get one that doesn't have a prepayment penalty.

waltworks

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Re: "Borrowing" from IRA for cash purchase - Feedback appreciated
« Reply #8 on: November 25, 2018, 04:36:07 PM »
I'm not familiar with $0 fee mortgages.  I thought those were basically adding the closing costs to the mortgage, which I don't want to do.  Can you suggest a lender to look at?  Would I be able to put it together in 2 weeks?

And this is less than 20% of our net worth -- both houses.  We just happen to have only 20k in cash and the rest in retirement accounts.

Call any mortgage broker you want. They will have a lowest-possible rate that will cost a few grand in fees, a higher rate that's cheaper, and an even higher rate that's free (or maybe they give you a few bucks). You're not rolling the costs into the loan, they're trying to get you to pay the higher rate for 30 years and making their money that way instead of fees on the front end.  Some of the no-fee loans will have a prepayment penalty so double check that.

How are these two houses only 20% of your NW when you are forced to raid retirement accounts to pay for house #2? Unless these houses are like $10k, that doesn't add up:
house 1 + house 2 = say, $500k. Probably more than that, but just for the sake of argument.
$500k x 5 = $2.5 million NW with 20% in houses.
$2.5 million NW with no cash on hand to pay for a $250k house makes no sense.

In other words, if these 2 houses are 20% of your NW, where the heck is the rest of your money that you need IRA funds to make house #2 happen?

-W