401K For Downpayment

401kloan-e1409168505291You’ve finally found the home of your dreams. There’s just one thing standing between you and your new house: The down payment.

Many home buyers today opt to use funds from their employer’s 401(K) program to come up with the down payment on a house. Ordinarily, you can’t take money from your 401(K) plan unless you retire, leave the company or become disabled, but many company plans permit certain “hardship withdrawals” when there is an immediate and heavy financial need, including the purchase of the employee’s principal residence.

The drawback to a hardship withdrawal is that you will pay taxes and penalties on the amount withdrawn from your plan, which often must be paid in the year of withdrawal. And while hardship withdrawals are allowed by law, your employer is not required to provide them in your plan. Check with your employer’s human resources department if you’re not sure if your 401(K) plan allows hardship withdrawal.

Another approach may be to borrow against your 401(K) – often as much as 50 percent of your account balance. You pay interest on the loan, but the interest goes back into your account. The money you receive is not taxable as long it is paid back and plans can give you anywhere from five to 30 years to pay back your loan.

There are risks involved in borrowing from your 401(K). If you lose your job or leave your employer, you must pay back the loan in full within a short period, sometimes as little as 60 days. If the money is not paid back in that time, it is considered a withdrawal from your plan and subjected to the same taxes and penalties. And while 401(K) accounts can usually be rolled over into a new employer’s 401(K) without penalties, loans from a 401(K) cannot be rolled over.

In addition, because the funds withdrawn from your account are no longer earning compound interest, your account will be smaller when you retire. And you’ll be replacing pretax money with after-tax money.

It is always good to check your options and make a good choice based on the facts.

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Jennifer Flinton

Lori and her team were able to complete my mortgage - start to finish - in 23 days. That is unheard of in this industry where it normally takes 30-60 days, minimum. They were also able to help me write up not one, not two, but four offers on houses within that time period, providing the necessary paperwork promptly each time. But most importantly, Lori and her team were friendly, warm, compassionate, and understanding, on top of being professional and efficient. I cannot recommend them highly enough.

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Frankie & Melinda Waller

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Landon Smith

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John and Carolyn Drummond

We cannot speak highly enough of our experiences in working with Lori Anderson to arrange financing for our new home. For most of the process, we were in a different city from Lori, but she used technology to make us feel like we're in the same town. We felt as though we had a personal relationship with Lori. She could not have been more supportive, patient, and positive. I encourage anyone purchasing a home to contact Lori Anderson.

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