401k Borrowing to buy home
I’m considering borrowing $25000 from my 401k to purchase a home. I plan on selling my condo and paying off the loan with the proceeds. I’m 50 and have a balance of 550k in my account. I also have a Roth & rollover IRA that total 45k. I have 30k in savings. I’m trying to avoid paying PMI on the new home. Is borrowing to avoid pmi a smart thing to do?
Terry Says
Absolutely NOT! Could I be clearer?? The money is out of your account and not growing tax-deferred, impacting not only your current situation but your future retirement. Listen, you can't "borrow" from your Social Security account! Treat your 40l(k) in the same way -- out of reach! Perhaps if you can't put at least 20% down, you're not ready to purchase a home. Remember, a home involves not only mortgage and property taxes, but unexpected repairs. If you have to stretch this way to make the deal work, what happens when you need a new furnace?! Please re-think this plan. It doesn't make sense. P.S. If you should lose/leave your job before repaying the loan, it will be treated as a withdrawal -- subject not only to taxes but to the 10% early distribution penalty! Just a reminder.
