Retirement Funds, 401K, & IRA Accounts: Their Use in Real Estate Purchases

By
Mortgage and Lending with NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 IL Lic 031.0006220/WI
https://activerain.com/droplet/5gZ9

 

 

Retirement Funds, 401K, & IRA Accounts:

Their Use in Real Estate Purchases

 

There are several ways buyers can "fund" their home or investment property purchase beyond those funds they've built up via their savings accounts ...

 

As a potential home buyer, it's always important to discover and thoroughly investigate all options at your disposal.  Finding and working with a good loan officer makes a big difference in this regard.  

 

An experienced knowledgeable LO will do their homework and then present you with a menu of available options. Then they'll help you weigh the pros and cons of each as they pertain to you and your future plans.  

 

Now it's important to first point out: 

"Low or NO Down Payment" mortgage programs exist.  And they certainly can help ease the need for large savings and down payments.

 

 

Some examples of those helpful mortgage programs are:

  • VA Loans
  • FHA Loans
  • Home Ready Program (Fannie Mae)
  • Home Possible/Home One Programs (Freddie Mac)
  • USDA Loans
  • IHDA * (100% Financing. Income Limits Apply. Funding is limited. Restrictions are also in place and apply. * Illinois Housing Development Authority.  Can be used for the purchase of IL properties only.) 

 

And it's also important to add:  Beyond those mortgage programs mentioned above, help can be available to buyers/borrowers via the following methods.


But I'm going to focus in this post on 401k and IRA (Individual Retirement Accounts), where an account holder has "access" to their retirement funds before their retirements take place ... 

 

There are several ways that an employee with a 401K or IRA  can get to their funds if they're a hopeful buyer.  Those range from a loan against the balance of the account ... to an outright withdrawal of money. 

 

No matter the method of access:  It's vitally important that each account holder/borrower know or learn the specifics of their own retirement plans/funds.  Each 401k or IRA plan can have different rules for loans and withdrawals.  I highly recommend, if you are considering either action, that you speak with your plan's administrator prior to moving forward. 

 

Of special note, if you're buying a first home:  In these instances, there are often specific provisions attached for that purpose.  Many plans allow an individual to withdraw funds without penalties for their home purchase.  It's wise to check with your administrator to see if that beneficial option exists for your first home purchase.

 

Also, know that:  One's longevity with their employer may dictate if funds are available to be borrowed or withdrawn. 

 

If a provision of this nature exists, it's referred to as the "Vesting Period".  It speaks to the number of years an employee is required to be in the company's retirement plan prior to being eligible to withdraw or obtain a loan on retirement funds.

 

Included in most (not all) cases:  An employee can typically borrow up to 50% of the TOTAL Balance of their account.  The funds can then be repaid* back into the same account via a payroll deduction made over a set period of time, usually 5 years.  *That "re-payment" of funds is NOT considered a monthly debt in most loan scenarios, note all the qualifiers for these actions. 

 

As you can tell from my paragraph above, rules, regulations, and asterisks abound regarding 401K and IRA loans and withdrawals.  And again, that is why I so strongly urge all my borrowers to have a conversation with their plan's administrator prior to making any decision to tap their funds. 

 

All financial options should be presented, considered, and weighed by a borrower when hoping to buy.  But when retirement funds are being considered for use in a home purchase/financing, it's especially important that a careful review of account guidelines and rules be conducted and thoroughly understood.

 

For those considering the use of retirement funds for an investment property purchase, there may be special rules for them at play within their retirement plans.  Those I see most often are:

 

  • Age of the Account Holder
  • Rate of Returns
  • Rules for accessing funds
  • Special "terms" for gaining access (Loan or Withdrawal) to down payment funds by those purchasing an Investment Property



The use of retirement funds can be a very reliable and acceptable resource for funding a real estate purchase, for home or investment property.  But please ... protect yourself and your financial future. 

 

Take the time to fully-educate yourself prior to taking any action.  Consult your plan's administrator and your New Lenox - Will County - Chicagoland/IL - WI loan officer for information and advice along the way ...  

 

 

* Looking for mortgage financing answers, options, solutions, and experienced assistance? 


Are you hoping to Buy, Refinance or purchase an Investment Property in New LenoxWill County, or elsewhere in the Chicagoland - IL - WI area? 

Contact me!  I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
I'm easily found at:
 
 
Gene Mundt
 
Mortgage Originator -NMLS #216987 - IL Lic. 031.0006220 - WI Licensed
 
American Portfolio Mortgage Corp.
 
NMLS #175656
 
 
Direct: 815.524.2280
Cell/Text: 708.921.6331
eFax: 815.524.2281
 
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Gene Mundt

 Mortgage Originator  -  NMLS #216987    

                                 IL Lic. #031.0006220  -  WI License #216987                                                                                                    

NMLS #175656

 

Gene Mundt, Mortgage Originator,  40+ years of #mortgage experience, will offer you exemplary mortgage service and advice when seeking:  #Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in #Chicago and the greater Chicagoland region, including:  The #Lincoln-Way Area, #Will County, (#New Lenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Bolingbrook, #Romeoville, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of Chicago, #Cook County, and elsewhere within IL and Wisconsin. 

 

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Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Gita Bantwal 01/29/2019 03:51 AM
  2. Debra Leisek 01/26/2019 12:27 AM
  3. Gabe Sanders 02/08/2019 10:00 PM
Topic:
Lending / Financial
Location:
Illinois Will County New Lenox
Groups:
Mortgages
Consumer Mortgage Tips
Advice for Buyers
Bananatude
WillCounty
Tags:
mortgages
down payment
ira
401k
retirement funds
closing funds
talk to a lender
downpayment funds
home buying advice and tips
investment properties financing

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Ambassador
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Gene good advice.  This is one area that you don't want to assume, and want to have all the facts, especially since it is very easy to contact a Plan Administrator for the facts and avoid uncomfortable surprises later on.

Jan 24, 2019 01:15 PM #1
Rainmaker
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Carol Williams
U.S.: I specialize in helping agents who have been in the business 2 years or less create a thriving business. - Wenatchee, WA
"Customized Mentoring & Marketing Services"

Hi Gene,
Sounds like lots of caveats and buyers would be wise to seek a trusted advisor such as you before making any decisions regarding retirement funds for a real estate purchase.

Jan 24, 2019 02:02 PM #2
Ambassador
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Anna Banana Kruchten CRB, CRS 602-380-4886
Phoenix Property Shoppe - Phoenix, AZ
Arizona's Top Banana!

Hi Gene - this is really great information that explains the ins and outs of using 401K and IRA funds to purchases or refinance a home.  I have had several clients that have done this recently and all worked out fine in the end, but there were a few unknowns we needed to work thru on the plans.

Jan 24, 2019 02:13 PM #3
Rainmaker
1,023,144
Susan Haughton
Long and Foster REALTORS (703) 470-4545 - Alexandria, VA
Susan & Mindy Team...Honesty. Integrity. Results.

This is a terrific resource for borrowers who wish to use retirement funds to make a home purchase.   Well done! 

Jan 24, 2019 05:36 PM #4
Rainmaker
1,150,550
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

Another informative post, Gene which offers a creative way to fund the home purchase, one I'm sure many people would not think about.

Jan 24, 2019 05:54 PM #5
Rainmaker
761,162
Kevin Mackessy
Blue Olive Properties, LLC - Highlands Ranch, CO
Dedicated. Qualified. Local.

Always great to have creative ways to get to the closing table explained by a lender in the know.  

Jan 25, 2019 10:19 AM #7
Rainmaker
445,655
Michael Eisenberg
eXp Realty - Bellingham, WA
Bellingham Real Estate Guy

Great info. Always get advice from CPA or tax professional if there is no plan administrator as in the case of an IRA

Jan 25, 2019 12:12 PM #8
Rainmaker
591,752
Debra Leisek
Bay Realty,Inc Homer Alaska - Homer, AK

Thank you so much for this wonderful post chock full of good information!

ReBlog!!!  

Jan 26, 2019 12:19 AM #9
Rainmaker
3,697,350
Dorie Dillard CRS GRI ABR
Coldwell Banker United Realtors® ~ 512.750.6899 - Austin, TX
Serving Buyers & Sellers in NW Austin Real Estate

Good morning Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi ,

Your advice is excellent. Best to have a thorough understanding of the pros and cons ... then move forward with creative ways to get to the closing table.  

Jan 26, 2019 07:53 AM #10
Rainmaker
3,046,049
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Gene what an awesome post, I get nervous when potential buyers want to touch their 401k especially when they only have a few years left working.... on the other hand when they have 10-15 years left I am not so concerned. Endre

Jan 26, 2019 11:35 PM #11
Rainmaker
5,076,608
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

Congratulations, Gene, on your feature recognition. This is important information to share with prospective home buyers.

Jan 28, 2019 07:12 AM #12
Rainmaker
714,026
Nick Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Tredyffrin Easttown Realtors, Philly Main Line

Good post and something that all buyers need to know, there are always options, just understand and know what they are and how they will impact you in the future.

Feb 01, 2019 01:21 PM #13
Ambassador
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Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

I've had several recently who spent a couple of years doubling up on their 401K contributions so that they could put a larger down-payment down on their home that they are downsizing to. The first one that I worked with took FOREVER to get the 401K loan processed (nearly a month) so, I warned the others to get it done as soon as they got their Contract in-hand. They all have and none of them have had to wait more then 5 days! (Go figure!)

Anyway, there are very specific steps that anyone using retirement funds must take and if only every lender had a teaching heart as you do, things would go so much more smoothly for them.

Have a great weekend, Brotha Gene! 

Feb 01, 2019 02:48 PM #14
Rainmaker
1,754,649
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Hi Gene - in my years as HR Director I saw some of these.  You brought up some good points.  A hardship withdrawl should not done without full understanding.

Feb 06, 2019 07:32 PM #15
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Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi

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