Should I use 401k money to buy a home?

[tfu07]

The bank won't count my income because I haven't been self employed for two years yet. So we have to use my wife's income only.

We found a house we really like that has a large shop in the back that I can use for business. It would save my business $320 a month in rent.

In order to buy this house we would have to either get a cosigner which we rather not, or borrow half of both me and my wife's 401k money. Plus another $5k from our emergency fund.

Seems like a lot but we really like the house.

Spending that much money on a house and cutting our 401k's in half sound crazy, right?

Has anyone had a similar situation?

[clarkm04]

I'm struggling to follow your logical.  So to save $3,840 a year in business costs you will raid 5 K from your EF and half your total retirement which ensures a withdrawal penalty of 10% for all the money you take out.

I would save up more money for a down payment or get a cosigner despite your dislike of it.

[LadyStache]

If you take on a side hussle, will the income from that count? If so, maybe try to find one and use any money you earn from that for the down payment. I wouldn't recommend raiding the retirement funds AND draining the emergency fund to buy the house because unexpected repairs may be needed after the purchase so it would be wise to have those funds available. Or, just wait until you've been employed for two years so that your income will count.

[Thegoblinchief]

How long would it take to repay the 401(k) loans?

[cpa cat]

If I could repay the 401k loans and replenish the EF in 12 months or less, I'd take the risk and go for it.

If you can't repay the 401k loans and EF in 12 months, then it doesn't sound like you truly have the cash flow or down payment you need to comfortably buy this house and your should wait until you do.

[tfu07]

I'm struggling to follow your logical.  So to save $3,840 a year in business costs you will raid 5 K from your EF and half your total retirement which ensures a withdrawal penalty of 10% for all the money you take out.

I would save up more money for a down payment or get a cosigner despite your dislike of it.

No 10% fee because I'd be borrowing from 401k. It's a loan that can be repaid in 15 years or less. That $3,840 adds up to almost 20k in 5 years which is the real attraction for me. Thanks for your input.

[tfu07]

If you take on a side hussle, will the income from that count? If so, maybe try to find one and use any money you earn from that for the down payment. I wouldn't recommend raiding the retirement funds AND draining the emergency fund to buy the house because unexpected repairs may be needed after the purchase so it would be wise to have those funds available. Or, just wait until you've been employed for two years so that your income will count.

I agree with you. Unexpected expenses can come up and we don't want to get caught unprepared. I think we fell in love with the property and we all know that people in love sometimes make dumb decisions.

[tfu07]

If I could repay the 401k loans and replenish the EF in 12 months or less, I'd take the risk and go for it.

If you can't repay the 401k loans and EF in 12 months, then it doesn't sound like you truly have the cash flow or down payment you need to comfortably buy this house and your should wait until you do.

Probably would not repay loans in 12 months.

[tfu07]

Thanks for all the input to everyone. We've decided to be patient and wait until we save more or until I can use my income on the loan. Although the house seems perfect for us there will be others.

[clarkm04]

No 10% fee because I'd be borrowing from 401k. It's a loan that can be repaid in 15 years or less. That $3,840 adds up to almost 20k in 5 years which is the real attraction for me. Thanks for your input.

Thanks!  I missed that in your original post.  I'm glad you are being patient because even taking a loan and draining your EF is a lot when being patient will make it less risky.

Best of luck!

[Rebecca Stapler]

Thanks for all the input to everyone. We've decided to be patient and wait until we save more or until I can use my income on the loan. Although the house seems perfect for us there will be others.

If there isn't a particular reason to buy now, that seems wise. And in the interim, keep looking at homes in your price range to get a feel for the market and the possibilities. There will be other houses, and there's always the possibility of building your own shop -- to your liking -- if you get a property that can sustain it.

[Bateaux]

Use the 401k money and emergency fund.  Get the house, refund the emergency fund asap.  Make sure your income stream is solid.  401k loans if unpaid are immediately due and incur the 10% penalty plus income tax.  I did something simular after buying my home.  I borrowed 401k money  to remodel.   Paid myself back the interest and avoided bank loan fees.  With 750k in our 401ks today I'd say it didn't hurt us.  Just be very serious about repayment.

[rmendpara]

If $4k in rent savings for your business per year is a game changer, your business doesn't make enough money.

Save the $4k from your income. Borrowing from a 401k is expensive (stated interest rate + lost earnings) and may end up negating any rent savings.

What is your income/assets and the price of the house you are looking at buying? It's hard to gauge the relative amounts.

General rule: If you can't afford the down payment, you can't afford the house.