BORROWING FROM YOUR 401K

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Real Estate Agent 625292
https://activerain.com/droplet/4Mty

Have you refinanced your home into oblivion? Tapped out every available money resource with a myriad of loans and credit cards? There is one last option: borrowing from your 401(k). . If you've never heard of this option, it's because until recently, it just wasn't done that frequently. But with the market still not fully recovered, and people desiring to cut their high interest debt, more folks are discovering this alternative lending source when purchasing their home.

Pros: A 401(k) loan does not appear on your credit report. They are not reported to Experian, and do not become a part of your credit history.

• The interest on these loans is some of the lowest out there.

•You're paying yourself the interest, not some bank. You'll get your money more quickly than if you were using another means of borrowing.

Since it's a loan, you will not be charged the 10 percent early withdrawal penalties plus income taxes you would have to pay if you withdrew the money.

• You don't have to qualify for the loan through the usual long, painful credit approval process, because in effect, you are the lender.

 • No assets or collateral are needed to secure the loan..

 

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Cons: The biggest con is that you are forfeiting the accrued interest you would earn if your money stayed in the 401(k). Calculated over the long term, it can cost tens (even hundreds) of thousands of dollars in potential gain.

• Unlike a home equity loan, the interest is not tax deductible. • Some plans do not allow contributions to the 401(k) for the period of the loan.

•  If you lose or quit your job, the loan is often due in full.

 

 

In 30-60 days (although some plans are open to renegotiating the terms of the loan. Find out before you sign the papers.) . If you default on the loan, it is considered a withdrawal and you will owe a 10 percent penalty plus a hefty tax payment. So if you had borrowed $50,000 and couldn't pay it back, you would have to pay a $5,000 penalty and federal and state taxes that could take another $20,000 of the amount.

To calculate the actual cost of borrowing from either source: for a home equity loan, ignoring up-front costs, the after-tax cost is the interest rate minus your tax savings (interest rate times 1 minus your tax rate).

 

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 Understand the difference between "listing prices" (what sellers are asking for) and "sold prices" (what buyers are willing to pay).

By comparing these price trends, you'll have a good idea of where the market is heading. The median listing and sold property prices are calculated based on the market activity each month.

Some sales are not immediately available from public records. As they become available, the data are updated.

 

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Information provided courtesy of Holli Washington-Keller Williams Realty

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Topic:
Home Buying
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buying a home
downpayment
401k

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Rainmaker
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Spirit Messingham
Tierra Antigua Realty - Tucson, AZ
Third Generation Full-Time Realtor® 520 471-6900

Over the years I have seen many buyers borrow from their 401K, IRA, Simple, SEP, and other retirement accounts for a home.  I try to keep my opinions to myself, and simply suggest they speak with a financial advisor before making a final decision.  I use the same advice when clients ask about account or tax questions (see CPA) or legal advice (see attorney).

Jan 04, 2016 11:12 PM #1
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Rainer
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Holli Washington

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