All,
I'm in the position of wanting to purchase a home in the next few months. I've identified the apartment (the one I'm currently living in) and I have a confirmed price that has me planning to make the purchase. Unfortunately, I haven't been planning to purchase a home so I don't have enough for the down payment in cash. I have enough cash to put approximately 7% down. So my question is where I should get the other 13%, given that I have a few options. Naturally there are tax implications that I'm somewhat aware of (and learning more), and I'm hoping someone can help me understand the specifics of the taxes. In parallel, I'm developing a spreadsheet that will allow me to run the numbers... all advice and info would be much appreciated.
Sources for the remaining 13%:
1. Taxable investment account - this account has well above the remaining 13% down payment, my understanding is that this is the easy method to understand, I would pay 15% federal tax on the gains and another 11% or so for CA state taxes - total tax rate of ~26% on the gains
2. 401k loan - I can withdraw up to $50k from my 401k and no more than 50% of the value. Maxing this loan wouldn't quite get me to 20%, but would get me very close. That said, removing money from a 401k for a down payment is very frowned upon, and for a reason. I lose money from my 401k for some time, which hurts the future gains. I pay it back, with interest, but I don't really understand how that goes back in. Say I withdraw $40k at 5%, would all of that money go into my account (the principal, plus interest)? If I could pay it back at a rate of 7% (my standard assumption for investment gains), would that mean I wouldn't "lose" money by withdrawing from the 401k? And finally, I recognize that when I pay back the loan, I pay it back with post-tax dollars, which means I do lose there...
3. Roth IRA - I have some money in here, but not enough for the full remainder of down payment. My understanding is that I can withdraw the principal with no issues, since I already paid taxes on it. I'm not sure if I can put my withdrawal back in, and it may complicate matters that my income is high enough such that I'm in the phase down range for Roth IRA contributions (I'm aware of the backdoor Roth).
Anyways, I am in the fortunate position that I'm able to make the 20% down payment, but since I wasn't planning to purchase a home, I have to figure out how to get the money from my other accounts. I would be able to pay back a loan from my retirement accounts in less than 18 months. Thanks, for all the help, and please let me know if I'm missing any pertinent information.