Using Your IRA or 401(k) for a Down Payment

Posted by Judy Orr on Tuesday, November 15th, 2005 at 3:19am.

Sometimes it seems like there is just no way you'll ever be able to afford purchasing your first property. As prices increase, the dream of home ownership drifts farther house in a bottleaway. There are many different rules and ways of obtaining financing and/or funds. Here are two you might want to consider.  Please consider the date of this post and double check with your IRA or 401K provider to make sure what current rules are.

1. If you are a first-time home buyer you are allowed to withdraw up to $10,000 from your IRA without penalty. You will be taxed on the withdrawal, unless you have a Roth IRA, as you were already taxed on those contributions.

2. You'll need to check the rules for your 401(k). Although you can take the money out, you'll be penalized 10% of the withdrawal and you'll be taxed on the amount taken out. Some 401(k) plans will let you borrow against your account but will charge interest and you'll have another payment to make on top of your mortgage. The interest charged will go into your 401(k) account. There are many loans available today that might allow you to purchase a home without having to raid your retirement funds. Check with your loan officer first and if you decide to borrow against these types of accounts you should also contact a financial or tax advisor.

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