Author Topic: 457/401k mortgage loan  (Read 1831 times)

Mrs. Healthywealth

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457/401k mortgage loan
« on: April 07, 2017, 06:00:43 PM »
We are considering buying a home, we were given a 60 day notice and figured we can at least look around to see if there is anything decently priced.  If nothing good out there, then will rent, but after this fiasco, I'm a bit nervous to rent again (never had to deal with this before). We had planned to buy in 2-3 yrs. Rent vs. Buy favors buying a home ($650k) given rent is so damn high in Los Angeles for a 2bd/1bath in our location. Our agent mentioned he things we are close to the height of the market, but I'm also not buying for an investment.

We have the 20% down payment, but it would be nice to have a little more cushion. We save $2000/month for a home (after maxing out 457 and ROTHS). Was wondering what you thought about taking out a mortgage loan from my 457 to create a $15000 cushion, with the intention of paying it back within the next 5 years. The interest I pay on this loan goes back into my 457 account.

Anybody done this?  Thoughts?

KungfuRabbit

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Re: 457/401k mortgage loan
« Reply #1 on: April 07, 2017, 09:10:56 PM »
why bother? 

If you need an emergency loan take it out then.  Don't take it out just to have cash sitting around...

maizefolk

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Re: 457/401k mortgage loan
« Reply #2 on: April 07, 2017, 09:34:44 PM »
20% down on a $650k house is $130,000. At that point $15,000 one way or the other is a rounding error.

I tend to agree with @KungfuRabbit, rather than taking a loan from your 457, plan to meet any unexpected expenses out of your $2,000 a month of surplus income, with the option of temporarily stopping 457 contributions and roth contributions (so $1,500 * 2 + ~460*2 = $3,920 of additional possible surplus income) if you hit a serious cash crunch.

$15,000 is only 2.5 months of surplus income between your post and pre-tax savings.

Mrs. Healthywealth

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Re: 457/401k mortgage loan
« Reply #3 on: April 12, 2017, 09:15:13 PM »
Stop making ROTH and 457/401k contributions, didn't even think of that. Investing is totally the default setting in my head. I just hate that we only have a $4000 cushion after buying a home. But, it's not that hard to take the money out of the 457 if I really needed it for an absolute emergency, option if something crazy happens the first few months before we build most of the cushion back.

I'm grateful that we are purchasing this home based off of one salary with the mindset that if something happened to one of us, the other wouldn't struggle to pay expenses. This is a huge difference from the first time we bought our home.  I'm more stressed about not getting this home, then the financial piece of it...that piece we owe to becoming frugal and spending on only things that really are important to us.

Thanks for your responses!