Terry, I am recently divorced and am earning about 28,000 a year in my job. i received all my ex-husband’s 401k as a divorce settlement — it amounts to about 32,000, which I have not yet paid taxes on (but will in 2014). Currently I rent, and my rent is as cheap as it can be (680 a month.)
Does it make sense to use a good part of the divorce settlement as the down payment on a house? I don’t know whether to do that — if a bank will even give me a loan, since I have only worked full time for about two years — or if I should just go on renting and keep the cash in my savings as a kind of security blanket.
Terry Says: First big question: why are you taking the money out and paying taxes? Don’t do that, if you haven’t already! You should have the option to roll it into your own IRA. Any bank can help you do that, and put it into a IRA CD, where it will grow tax deferred. And you won’t pay taxes until you take it out at retirement. Now there is one drawback to that plan: once it is in an IRA you will pay a 10 percent penalty on any withdrawals you make before age 59-1/2
To get back to your original question, I don’t think youa should buy a house, and as you note it is unlikely you could get a mortgage without a good work history. Just keep the money as savings in case of an emergency.