Borrow from 401K for condo purchase
On your WGN segment this morning, you stated that it was a very bad idea to borrow from a 401K account to purchase a home.
I am being displaced from my current apartment of more than 14 years as the landlord intends to sell the building. I don’t want to rent anymore. I would much rather be paying into my own equity. But the only way I can afford to do this is to borrow about 25K rom my TRowePrice account.
I am a very young 58 years old. I currently contribute 18% of my income to my 401K. My plan was to cut my contribution to 10%, and apply the other 8% to repayment (give or take), which would be much more than the required payment at a maximum 15 year period.
To use Kiyosaki terminology, I was not raised with a good financial education. My parents did okay in a dual income household until about the early to mid 1980’s , then struggled after health and career issues. I have taught myself enough that I was able to take control of my credit score (low to middle 700’s), but it is a constant challenge to keep up.
Bottom line: Given my circumstances, am I making a sound or a really horrible financial move?
Terry Says
Sorry I didn’t get to this sooner. OK, I get your plan. A few questions:
Will your 40l(k) let you borrow for this purpose?
Are you aware that if you lose your job it will be considered a withdrawal — and subject to a 10% additional penalty since you are under age 59-1/2?
Is there any other way you could get the down payment?
Are you sure that you can get a mortgage even if you do the down payment withdrawal. Please check and get qualified first.
Have you factored in rising property taxes? And the cost of insurance?
I always think it is a mistake to take money out of a retirement plan early – even as a borrowing– because that money is not earning any gains while it is outside the plan, despite the fact that you will be paying interest on the borrowing (to yourself).
I do understand the need to own your own place and have that security. So if you’ve covered all the bases, I withdraw my objections.
