Has anybody taken a 401k loan to use on a down payment? I know the general advice is don't do it, but it seems to make sense to do it. Here's the basic situation:
We're going to buy a house that will cost around $600,000, and we have about $80,000 saved. I'm considering taking a $50,000 401k loan to get us down to an 80% ltv. I expect to be able to repay that loan within 2 years without reducing our retirement saving rate. We have about $250,000 saved for retirement, we're early 30's, and our current savings is almost $100,000/year, including retirement savings.
My thoughts are:
1. Having the cash out of the market for the next year or two doesn't seem too concerning for me. If the market goes down, I'll save money by taking out this loan.
2. I'll save PMI, avoid taking out a 2nd, and be able to secure the lowest rate possible on my first.
3. At a 5% rate on the 401k loan, paid with after tax money, 3-4% will be returned back to me in after tax money during retirement. So my real rate is under 2%, and the fees are minimal.
My concerns:
1. If something happens to my job, that would throw a wrench in everything. But I feel very secure for the next 2 years during my repayment. My biggest concern is a drop in income, which could stretch out the repayment term, but that would have to be a fairly large drop.
2. The market could skyrocket in the next 2 years, in which case I would lose out on 20% of my gains ($50k out of $250k). Actually less, since I'll essentially be dollar-cost averaging that $50k back into the market by making loan payments.
Am I missing anything? I know the "right" thing to do is to wait until I have the money without raiding the 401k, but then I'll almost certainly be paying a higher mortgage rate. Any advice on this?
(sorry if this question has been answered before, the search feature was not working)