Using Retirement to Fund First Home?

[kjohnt]

Hello,

First post here and I haven't had the chance to read through the old articles, so I apologize if this has been answered previously.  Links are welcome.

I'm a single 30yo male.  I'm thinking about purchasing my first home and I have some questions.

First of all, I have to shamefully admit my savings account is empty, so I don't have money to put down on my first home.  With that said, I have been steadily maximizing my Roth IRA each month and there is plenty there to cover a down payment.  I am allowed to take funds from my Roth IRA penalty-free to fund my first home purchase, but would that be a bad move?

Pro - Home interest rates are low so getting in now would be ideal
Con - Because I'm already maximizing my Roth IRA, any funds removed will be lost forever

I've recently tightened my budget and can (optimistically) save $250/m after funding my Roth IRA to save for a down payment, but I'm afraid the interest rates on housing will be much higher in a few years by the time I'm ready to make a purchase.  Also, that's just that much longer I'd have to rent.  There are some first-time homebuyer programs which can help me with down payment assistance and I think I could work out a deal with a lender/seller to cover closing costs, but most of those entail higher interest rates (about 1% higher) in order to get the down payment assistance.

I don't know what to do!  There are a lot of variables it seems.  Should I start saving and buy when I have adequate funds for a down payment?  Should I pull funds from my Roth IRA to make a down payment?  Should I try for down payment assistance and take the higher interest rate?

Thanks in advance for your input.

[LibrarIan]

My honest advice is NOT to do that at all. Unless your life depends on it, never touch your retirement funds until you are actually retired.

Say you pull this money out and get a house. Then you lose your job. Now you lost your retirement funds and your house. If you currently get laid off/fired, you'd simply lose your rental unit and still have retirement money to fall back on if absolutely necessary (but you should really have an emergency fund going).

My advice is to examine your living situation and, if you find a better deal elsewhere, be open to moving rental units. Then take a good hard look at your spending habits and trim those down. After that, take a good hard look at your stuff you own and see what you're willing to part with, then donate/throw out/sell what you can. This will help you increase your saving ability. If your employer has a match for your retirement fund (if you have one of those) then up your contribution to their match, anything extra should go first into your emergency savings fund (to the tune of about $3k to $10k - opinions here vary), then max out your Roth IRA if possible and anything beyond that is dumped into a VTSMX mutual fund through Vanguard.

Don't put yourself in the position of fearing for your home while you're not prepared to own one.

[FLBiker]

Personally, I wouldn't pull out retirement money to buy a house.  You can never refund those years in your Roth IRA.  And no one really knows what housing prices / interest rates are going to do.