[USER]

Anyone here have experience using their Roth IRA or borrowing from their 401K for a first time home purchase?

The wife and I are looking to buy soon but want to put up 20% to avoid PMI.

Only way to do that ATM is to pull from my roth and borrow from her 401k.

Anyone have personal experience good or bad they could share? I know the basic rules around both.

edit: we’ve got ~20% now invested in brokerage accounts / savings now.

But I want (need) to maintain an emergency fund of ~10% of the cost of the house (roughly 6-9 months living expenses). So I can

*put 10% down and pay pmi
or
*pull 10% from our retirements and put 20% down, no pmi.

I’m also strongly considering a 15yr mortgage vs a 30yr, and could only afford that if we put 20% down.

[Beau]

If you already have a house picked out that you love and simply cannot pass up, borrow a little, not a LOT.

Houses aren’t getting any cheaper and there’s always multiple offers.

PMI blows but sometimes you have to bite the bullet and pay it for a few short years.

Not the end of the world.

Just don’t kill half your investments to avoid a little more tacked on to your house payment.

[Ian]

Make sure you “do the math” to ensure that avoiding PMI is the lease expensive option.

There are a lot of “rules” like avoiding PMI that get talked about as if they’re indisputable facts, but are often penny wise and pound foolish.

Many [most?] lenders will drop the PMI as soon as you hit 80% equity with a new [$800] appraisal.

The need to refinance isn’t a forgone conclusion. Often, paying $2000 a year in PMI for 2 or 3 years before you hit 80% equity is a cheaper option than borrowing a lot of money from you’re retirement account as you may lose a lot more than $2000 a year in potential gains.

Also, if you’re handy, you can purchase a house with less than 20% down, take a few months to remodel a kitchen and bathroom, have a new appraisal done, and then drop the PMI when the new appraisal shows that you now have 80% equity.

If you’re adamant that PMI has to be avoided, ask your lender about an “eighty ten ten” option.

It’s an 80% conforming mortgage, 10% HELOC, and 10% down payment.

That way you’re only paying a higher interest rate until you can pay down the 10% HELOC, but you can control how long that takes.

It’s kind of like PMI that automatically disappears the moment you hit 80% equity.

[Tweetie]

If you borrowed from retirement for down-payment and got the home, then found out 9 months after living in it that you needed an hvac for $8000, how would you pay for it?

What about purchasing a $3000 lawnmower?

A $5000 wood fence?

Paint? Floor? Blinds?

If you are going to have to finance every (or almost every) aspect of homeownership then seriously rethink the whole “homebuying thoughts”.

It’s the little things that add up as well.

[Josh]

DO NOT buy right now.
The market is dropping. Just search for housing.

Tampa, Miami, Austin.

That’s where it’s starting. Hold off for atleast 6 months and see if it spreads (I really think it will).

But to answer the question.

Yeah, I’ve borrowed from my 401k (thrift savings plan), I think it’s worth doing to get into your forever home sooner and reduce pmi and these high rates.

At 3% it’s worth paying the pmi, especially in a rising price market bc can get re-appraised to cut pmi.

But now with high rates and dropping prices it makes better sense to pay the 20% and cut pmi and reduce the 7% loan payments.

[Zach]

Having to do either one of those things probably means you’re not ready to buy the house.

[Max]

unfortunately I had to borrow from my 401k when Allstate threatened to cancel my homeowners insurance unless I replaced my roof.

This was over 12 yrs ago and I was not yet financially literate.

I paid back the 401k loan within two yrs but I would never do that again.

I was basically slowing down my journey to wealth.

[Watson]

I never done the Roth IRA. I have from the 401k. Just follow the rules from your plan.

It’s been mostly a positive experience. You pay yourself back interest.

Try to pay back your loan as fast as possible.

[Tanjib]

If you have to tap into your retirement accounts, then you are not ready to buy.

With that being said, you can pull your “contributions” from Roth at any time without tax or penalty.

For 401k, you can withdraw upto $10000 without penalty for first time home buying but you will have to pay taxes.

[Author]

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