401k loan for home down payment
Hi, Does it make sense to take a 401k loan to pay for a home down payment?
You can only borrow $50k. It’s almost not worth it, but if that’s your only option it’s not a terrible one.
Don't do it. If you lose your job for what ever reason, the entire remaining balance will be due in 60 days.
Not all 401k loans are due if you quit. It depends on the plan offered by the employer. My plan lets me make the payments from my checking account even if I were to switch jobs (while employed, payments are deducted from the paychecks)
If you can avoid PMI, then it’s worth it.
That is WILDLY oversimplified and dependent on the terms of the 401(k) loan and the PMI. Depending on how much your downpayment is, the PMI may be negligible - e.g. $100/mo. Unless your mortgage terms state otherwise, you can remove PMI by paying down the original loan value to 80% of the original home value. You can also remove PMI after two years just based on home appreciation (requires a new appraisal.) And don't forget the opportunity cost - your 401(k) loan is costing you money instead of earning value at the market rate - is the PMI cost higher than your interest and the opportunity cost?
The PMI rules have changed....
I did it...well with my IRA. Here’s why: the penalty I paid (taxes) was a certain dollar amount and I did the math on how I expected the home to appreciate and it made more sense to put that $$ into the house as opposed to the IRA. It would make more money there. If you don’t own a home now, you’ll also start seeing tax benefits that could counteract the penalty for withdrawal. But that had to do with my expected appreciation and expected rate of return. There’s risk for sure. And. I’m not a financial planner. I just stayed at a holiday inn express last night
You can take a loan against your 401k, otherwise your best route will just be increasing the amount of your mortgage.