Taking a loan out of 401K for closing costs on a house

It's not going to be a dumb move unless you decide to sell or move soon. If you think you'll live there for several years, then it will not be a dumb move. Trust mama.

OP, you really should spend time finding a financial adviser. The DL is not the place for asking advice about such important matters. Ideally, a financial adviser will look at the whole, big picture, ask you tough questions and be with you for a few years, if not decades.

OP As long as you believe you can afford to pay your mortgage, plus live with the reduced salary for 5 years due to the 401k loan, then do it. Whether this investment purchase for a possible forever home or one you plan to sell in the future for nice profit, a home purchase is a good reason to take a loan on your 401k. Some financial advisors say to never take a loan against your 401k, but I don't agree with them. If the numbers add up then do it.

I think it's a dumb move. Economy will tank and your new house will lose value.

I think we are slowly heading into a recession, which is another thing that will help us fire Trump. Keep saving and wait a couple of years.

Get the fuck out of Mass and live somewhere cheaper.

We did it, OP. For us it was $60,000 for a down payment. It was money that needed to be rolled over. On the one hand, it was totally worth it. We love our house. Our salaries easily pay the mortgage. On the other hand, we paid dearly in taxes the year after buying. ($20,000) The money you pull out is heavily taxed. So that's the kicker, for us, more than the losing the retirement money. Would we do it again? Yes. But maybe we would have saved more to cover the taxes. We're still recovering in Year Two. Don't listen to anybody who says don't do it. Remember, there is no guarantee you'll live to retirement.

Your 401k Loan is APPROVED. Make sure you pay off THE MOST you can for the down payment.!!!! Get a 15-year. Not a 30year mortgage

How about borrowing from your 401K to pay down/off credit card debt?

Why wouldn't you make your closing costs with your 401k and not your savings. That is what savings are for. I don't understand this.

OP, if I were you I'd first research the sales prices for the past year in the area you're looking to buy. The reason: we have had another housing bubble (it's a periodic thing) and in most of the US prices have begun to drop and will continue to do so. Checking the price histories in your area will give you a feel for what's happening there. With that information you'll be in a better position to make an offer (you don't want to overpay in a declining market). Or you might configure your offer to include the requirement that the seller pay the closing costs, they're already doing that in some markets. Or you might even decide to postpone your purchase for another six months to a year and wait for prices to continue to drop.

Depending on the area and the price range you're looking at, the eventual price decreases could be enough to make it much easier for your to budget for your closing costs and down payment. Speaking of which, the next thing you'll want to do is shop mortgages. Look for a lender that might be prepared to work with you in terms of requiring a smaller down payment or including the closing costs in the loan.

Final tip: if you really must buy now instead of waiting for the market to drop further, then try to put down the smallest down payment the lender will permit. Reason: if the economy tanks and/or the house value crashes, the less money you have in the house, the easier and more sensible it will be for you to just walk away from it - or to use that threat to negotiate a better deal with your lender at that time. If you decide to keep the property, you can always pay the loan down faster with what would have been the rest of the down payment money.

I had a coworker who moved up to a much larger, more expensive home in 2007, right before the real estate market crashed. Worse yet, she and her husband put a big down payment on it. Less than a year later, the house was worth 40% less than they'd paid for it. Goodbye, down payment. Since they were upside down, they couldn't refinance into a cheaper mortgage, so they were even more screwed. She screamed loud enough to bring the ceiling down when she learned I refi'd into a loan whose interest rate was half what she was paying, from the same lender she had, when that lender refused to refi her own loan. She and her hubby were well and truly stuck, because they hadn't researched the market and they'd put way too much down, thus forcing themselves to commit to an asset that continued to lose value.

R11- I am taking your advice.

I do not have a 2nd income as a buffer or back up. And my gut tells me that now is not the right time.

Your advice really resonates.

Thank you all- every one of you had great advice.

My biggest concern is losing at minimum 1/3 -1/2 of my 401K from a crash that I anticipate in 12-18 months. I truly would rather have that money in equity on a home. But the housing market here is definitely on its way down, slightly-

And I was preapproved through Quicken Loans for as little as 5% down. I was going to do 10%-

A home purchase is about the only thing I’d take a loan out of my 401k for. So I’d go for it with the following caveat:

1) If you’re secure about your job, my understanding with 401k loans is that if you separate from your employer you have to pay off the balance almost immediately.

2) Don’t understand the taxes R7 is speaking of - a loan is not a withdrawal, which is what I am thinking R7 did.

If you are in Mass, property values will likely not drop a soul crushing amount.

No time like the present.

R13, Thank you- I am not feeling secure about anything, certainly not my job! And your Answer #1 tells me to WAIT!

I have to look into that about the 401K loan. I was pretty much deciding not to take more than $20,000.00 after reading all these responses.

I am totally going to wait 12 months.

Why not buy something more modest and pay cash?

Loans from IRS-defined retirement accounts (the 4XX variety, i.e,. 401k, 403b, 457b, 401a) cannot be used without serious penalties to pay off credit cards, R9. But they can be used for home purchases without such penalties. Most plan administrators allow for a ten-year pay back, but you can pay it off early if you want.

As others have said, if you have enough liquid income each month to pay your bills AND your loan ($30K will be around $400/month), go for it. The interest you pay on the loan is paid to your retirement account. Essentially, you are lending yourself money and paying yourself back, with interest. I did when I bought both my houses.

HOWEVER, if you sell the property before the loan is discharged, you repay the balance before the sale closes. Plan to stay at least five years and you will be fine.

I see you have been shaken by cold feet. I’d reconsider, keeping in mind:

1) most of the housing crisis nightmares are from people who were emboldened by deals too good to be true for more home than they could/should afford in less than desirable areas where people make low salaries - the $50,000 McMansionnaires. NE Mass is not at area that strikes me as similar.

2) Keep in mind anything with less than 20% down is going to entail mortgage insurance payments on top of your mortgage. That money doesn’t go towards your equity nor is it tax deductible. If you can swing it, do 20% and no more.

3) Read the fine print on your Quicken loans preapproval — when I bought those rates and lenders weren’t necessarily the cheapest or most dependent - you get what you pay for.

That are lots of ways to avoid PMI when you have less than 20% down. PMI is still deductible on your federal tax returns (as long as your AGI is less than a certain amount.)

[quote] Why wouldn't you make your closing costs with your 401k and not your savings. That is what savings are for. I don't understand this.

OP clarified -- and I agree -- that 401k investments are cresting at the moment (7/2019) and will lose value in a matter of weeks/months. Better to have savings when market crashes and 401k investments are worth 60% of today's value. Take the loan from the 401k and keep savings intact.

Also, if you are buying a house that will be your residence there is little downside. You will be there long enough to ride out any downturn and your monthly payment will not go up (like rent).

Don't fail to act out of fear, OP.

Yes, I just googled, apparently there is no 10% tax penalty on a 401K loan if you lose your job and the loan was for FIRST TIME HOME PURCHASE- I still think it would count as income though..

Interesting-

And yes, R2- I know that I will have to have mortgage insurance.

Homes around here are 400,000.00 + - The condos I am looking at are 350+

I just cannot be cash poor in this world. I truly do not trust anything anymore. But I like knowing that I can pay bills for a year or more if the worst happens.

20% down would be 3/4 of my savings, and I could not do it.

I am clearly not ready.

R18- I make very low 6 figures. and I am sure my AGI would be too high anyway... I had no idea about PMI being tax deductible- Very cool-

Fair enough, R18. I am in SF, so it is unheard of for anyone making less than 100,000 AGI to buy a home. Personal bias there. Point taken on tax deductibility.

I think skirting the PMI payment may be outside of OP’s reach given description of his individual finances.

Guys stop!!! All of you pro-house buyers with your good advice is making me second guess everything.

Honestly, DL has always had some of the smartest and savviest folks when it comes to money management-'

I think it is because many of us have been alone for long stretches of time, and we have to be even more diligent with our money managing.

You people are awesome.

^^ Oh dear- "ARE" MAKING- NOT "IS" MAKING

OP, I am concerned about the tax implications of 401k loans being shared in here. Bottom line: 401k loans, residential or general, are not taxable.

The 10% scenario you are speaking of is for 401k withdrawals.

This basic misunderstanding and your trust in Quicken loans causes me to question whether you are fully informed enough to take on a mortgage.

I think you should speak with a professional about your specific situation. A mortgage broker will be able to handle your questions and craft a plan for you.

I think it would be in your best interest to speak with a professional.

I will R24. I am done with the home purchasing idea. And I was planning to check with a smaller local mortgage company as well~

I will absolutely spend the next year researching.

[quote] OP: My biggest concern is losing at minimum 1/3 -1/2 of my 401K from a crash that I anticipate in 12-18 months. I truly would rather have that money in equity on a home.

Every investment contains risk. If your 401k is invested in mutual funds, and we enter a bear market, you could lose your money there. If you’re in real estate, the Crash demonstrated that you can lose money there, too. If your money is in a bank account, it will be very safe, but there is a chance that it won’t earn enough, and you will outlive your savings.

Now, within a 401k, you usually have a few options for investments. One of those options will be a money market account, or a savings account. So, you can leave your money in the 401k, and have it as safely invested as if was in a savings account.

I used to work for a financial company, and they advised the following:

Put 20% down, if you can, to save on mortgage insurance.

You should try to get your down payment from savings, and not from a 401k loan or withdrawal. As long as you keep enough in savings to live on in a pinch. I can’t recall the math involved, but I trust my source.

When I bought, in a Boston, incidentally, the banks were offering “First time homeowners classes”. Typically 4-6 evenings. They were really helpful to me. I don’t know if they are still offered. If not them, then maybe at the local library.

[quote] Get a 15-year. Not a 30year mortgage

While this is good advice if you will always be working, what happens if you temporally lose your income?

Another option is to take a 30 year mortgage and pay it off early by making extra payments or larger payments than required. That way if say you have a couple of months with no income or other expenses, like a new furnace, you can make the smaller required payment, instead of a larger payment you would have with a 15 year.

Not to mention with 30 yr mortgage the lower monthly payment can help you divert some funds into other investments - 4O1k, stocks, bonds, etc.

[quote]we paid dearly in taxes the year after buying. ($20,000) The money you pull out is heavily taxed.

R7 Same here. Got killed by the IRS. MURDERED.

Think about that, OP.

I did it because I was buying and selling. I had equity in my house but needed to move out of state so took a 401K loan to get 20% down so as not to have pmi. When my house sold I paid it back.

You have to live somewhere.

Buying a home, as long as you have a relatively fixed, low interest mortgage on a reasonably priced property in a good location (buy with your brains as well as your heart) is almost always a better long term use of your money than is renting (unless you’ve got a really sweet rent controlled apt).

Home ownership will cost more than you imagined the first few years, and will seem like the deal of the century after a decade.

So, if you’re still game, and expect to be with your employer until you can repay the 401(k) loan, do it.

Even if you’re forced to leave your employer just before the loan is paid off; worse comes to worse, you can use some of your non-401(k) savings to pay off the remaining, say $5,000, so you avoid the penalty that would otherwise be imposed.

R29 OP said 401k loan, not withdrawal.

Quicken is a great way to go.

-A non-disgruntled former employee, licensed in Massachusetts.

R32 I see that now. Withdrawal vs loan. Sorry for the confusion.

"will seem like the deal of the century after a decade"

So true. 6 years later, our condo payment is $1,800, with the most substantial increase being $50 in HOA fees over the same timeframe.

Our neighbors are selling for almost twice what we paid.

If we decided to rent it out, our neighbors are asking $2,800/mo. Newer apartment buildings on both sides of our complex are commanding $3,500.

R35 said it. OP another thing to consider is what your monthly mortgage payments (including property taxes and insurance) would be vs what you pay in rent. My monthly mortgage including tax and insurance is $750/month. I would pay $1200/month to rent this place.

There are websites with mortgage calculators where you can estimate the monthly payment for various loan amounts, then you can add the taxes and insurance parts yourself. Loan.com is one.

Sorry, the website is bankrate.com

No ... use the savings first. If you need it later on you can always take the loan from the 401K later. You can invest that 401K conservatively and make guaranteed income of ~2%. What are you making on your savings? What would that loan end up costing you? I say buy the house by not the way you're proposing.

The DUMBEST MOVE you can possibly take is a dispersal from your 401k!

I see the occasional numbskull do this at the tax prep office I work at every tax season. There is an immediate 10% penalty and then the entire amount is taxed on top of your regular income. Remember this was pre-tax income to start with so you have had no withholding against it like the rest of your payroll income. You may lose HALF of it to taxes. Smooth move, huh? Where are you going to get the money to pay your tax bill next year? Your 401k?

R39 See R24. OP is talking about a loan on his 401k, NOT a withdrawal. A loan would not be taxed.

[quote] You can invest that 401K conservatively and make guaranteed income of ~2%. What are you making on your savings? What would that loan end up costing you? I say buy the house by not the way you're proposing.

It is ill-advised for a 42 year old to invest a 401k conservatively. The only way to maximize 401k value is to invest aggressively until about 10 years prior to retirement (@55 years old). Take the 401k loan and keep your savings.

Sounds like you might need a change of scenery. Interested in finding a different place to rent for the next year or so that might provide some enjoyment?

Thus you see the difficulty, OP, of soliciting advice from people who can’t be bothered to read (or smart enough to understand) the underlying situation.

House prices in MA have more than doubled in the last 5 years. I expect another downturn soon. Now is not the time to buy.

It was always better to buy until the housing market collapse. Sometimes, it is better to rent. Rent might be 2k vs 1500 a month for a mortgage but that doesn't include the external costs in owning vs renting. Things break, things need updating. The house I am in now, in the past 5 years I have needed a new HVAC (7000) a new garage door (1000) and now a new roof (10K). All things that passed inspection when I bought. MY hot water heater broke, that was 800 dollars. I spend about 4 hours a week on lawn maint, have to shovel snow in the winter etc..There are trade offs to everything.

Use your savings and treat it as a loan.

Pay yourself back just as you would as if you took the loan from your 401k.

All good advice here. But one thing I'll say, a home is a home. There can be a deep emotional benefit that outweighs financial considerations if you're in good shape. Or at least tips the balance. American Winners (of whom there are plenty on here) always buy at the right time, do everything right, and beat everybody else with their shrewd decisions. Ordinary people do what's best for them, and in the end, they're happy with the outcome. I'm the poster above who withdrew from a 2nd IRA. We paid the tax penalty because it was not my husband's first home purchase. For all the financial sacrifice, we've never been happier. When people in our neighborhood are aghast at what we paid for our house, we just say we're late-bloomers. No we didn't buy in the 1980s. We've traveled, worked hard, lived interesting lives. Now we're settling down.

Taking money out of an IRA when you have access to savings is pure stupidity. If you are worried about your IRA dropping then switch the money into money market funds temporarily. Or you could just leave it invested where it is if you have a long enough timeframe to retirement to ride out another “wave”.

[quote] R38: No ... use the savings first. If you need it later on you can always take the loan from the 401K later. You can invest that 401K conservatively and make guaranteed income of ~2%. What are you making on your savings? What would that loan end up costing you? I say buy the house by not the way you're proposing.

Not OP, but I like this idea, and would raise the following questions:

IIRC, you can borrow from a 401k to fund a home purchase. If OP uses his savings account money to buy a house, instead of using the 401k money, and later he needs cash for something, I’m not sure if he will be allowed to withdraw from the 401k account; or if they allow it, it might make to get an advisor, OP, call your benefits department.

Agree with r49. There are rules about borrowing from a 401k set by plan administrator. You have to check specific rules but generally you CANNOT get a loan just because you want one. You CAN get a loan to purchase a house. You are paying back the money you borrow. Do not use your savings. In uncertain times you need to have liquid assets handy.

OP already made his fucking decision posts ago, yet people who think they know the score has to get a word in and give their take, much of which has nothing to do with his situation. Go to bed already.

R51, there are other people who might be interested in reading what others have to say.

Besides, OP is understandably skittish; however, the more one reads or talks about a topic like this, the more comfortable one gets with decision-making.

Here is what I once heard about why you shouldn’t take a 401k loan. After you take a loan and repay it, the repayment is made with after-tax dollars at your regular income tax rates. Much later, when you withdraw the money in retirement, you are taxed at regular tax rates. So, the theory is, that you are taxed twice on the sum of the loan.

Something about this doesn’t sound right to me, but that’s what I heard and I can’t find a flaw with it. Nonetheless, if you need it, to pay for whatever you want, then that is that. I took a loan when I bought my home and paid it back as quickly as I could.

You guys truly give me hope-

I like reading all of your opinions. And yeah 1/3 of you clearly didn't read a thing I wrote or listen to a word I said (just like real friends or spouses!! 😍

I went and looked at a home to rent last night and no lie- 3 houses down has a TRUMP flag and then I see a rather handsome fellow walking his pitbull.

Needless to say, I sped off.

Here are the downsides to borrowing from your 401K to pay for a home. If you do, the mortgage company considers it new debt and it may affect your credit score. You will have less money in your 401K so if there is a market up turn or windfall in that time you will miss out. You only have so much time to pay it back and if you leave your job you may have to pay it back within 90 days so if you hate your employer you could be stuck working there until you pay off your loan. in General it is a bad idea. In my case I did do it, but that was becasue I could pay it back in full in 90 days after my house sold.

R55, are 401k loans reported to credit bureaus? If not, how can it impact a credit score?

It is considered new debt and yes it is reported as a loan, like any other loan even if it is your money.

I believe Boston's job market is on fire (CNBC ranks it as #9 in top 10) - hence the real estate market of the surrounding area is on fire. The overall economy is on fire. My opinion, he who hesitates loses. There will always be ups and downs of course, but if you ride them out you won't lose. I am old - I have friends who never bought out of fear despite being able to afford it and now they are my age with no net worth. At 42 now is the time. If you were to lose your job, you are at a perfect age that another would come right away. A 401K loan is perfectly fine for this purpose - if the market is to take a downturn you actually will win as you will be buying more shares of your investment at a lower price. There is nothing like having your own place - just buy less than you can afford, that way you won't be strained. If you were to lose your position, you can avoid selling by renting it out or taking in a roommate. Do it!

"Payments on 401(k) loans are not tracked by the national credit bureaus (Experian, Equifax and TransUnion), so they do not appear in your credit reports and cannot factor into credit score calculations. If you miss a payment or even default on the loan, your credit scores will not change."

OP, if you decide to wait, which I think is a good idea, use this time now to go on an austerity budget and save as much money as possible. I had decent savings but when home ownership became a serious goal for me, I scrimped and saved and made some short-term investments that paid off. I was able to save more than the 20% down I needed, which actually reduced my closing costs, plus had money available for repairs and minor fixes I wanted to do. I bought in 2010 at the bottom of the market. A few years later, I was able to refinance to a 15-year mortgage at 3% interest. Whenever I had some extra savings, I made additional payments on principal, and now have substantial equity in the house, which will be paid off in a few years. I thought about paying it off early, but at 3% interest at this point, it's negligible and I can make more money investing any additional cash I have.

As for saving money, it became almost like a game to me, challenging myself how much I could save. I stopped buying all unnecessary crap, and social obligations that I didn't particularly care about. I made most meals at home, or if I had to get something out, it would be cheap. I gave up my afternoon latte. All of that adds up. It was also good practice because after I bought the house I was on a fairly tight budget for a couple of years since all of my money went to the house.

It turned out to be a great investment for me, my house has appreciated by at least 60%. I realize in another market crash it will depreciate but it's in a highly desirable neighborhood where people will always want to live. Even if for some reason I have to sell in a down market, I will make a lot of money. That's another key point in real estate investing - buy the cheapest house in the most expensive market. You can fix ugly and broken but you can't change the location.

How about asking seller to help with closing costs?

r59 it is not reported to the credit agencies but it is considered debt - Lenders will take that into account. When you get a mortgage they go through all your finances including where you get the down payment from.

The average 401(k) balance rose 8 percent — or about $8,100 — to $103,700 in the first quarter of the year. The improvement in the stock market helped savers eke out a roughly 1 percent gain compared with the average balance in Q1 2018, according to Fidelity's data

If anyone can answer the following, please do...

In the old days, if you had less than a 20% down payment, you were required to get mortgage insurance (MI). MI wasn’t too expensive, but it doesn’t really benefit the buyer at all. In the old days, once your equity is gradually paid down and finally exceeds 20%, you were still STUCK paying MI. You could pay down 50% of the house value, and you’re still stuck paying MI, unless you refinance or until you sell.

I seem to recall that when I bought my house in 1992, there was talk of changing that, so that you’re freed of MI once your equity stake is over 20%. Is that the case, now or not? (If it is, it looks like you’d still be stuck paying for a new appraisal, right?)

I cant believe refinancing has such steep costs

R63, I am surprise the average 401k balance is over $100,000. You sure?

r64- you have to get PMI private mortgage insurance. Basically, if you can't put 20% down the mortgage company wants you to pay for their insurance that if you default they are covered. It lessens their risk in loaning you money. The assumption is if you have 20% of the total loan to put down you have a larger vested interest in the property and more of an ability to pay. Typically once you hit 20% in the principal you can drop PMI- the problem is when you start paying most of the money goes to the interest so you need to make principal-only payments to bring down your principal amount.

R66, keep in mind a huge number of Americans dont even have 401ks or equivalents

Exactly R68 . Sometimes the DL seems like everyone is in the top 10% of wealth. In reality, the average is seriously skewed by the top 1-5% who have $1 million+. The majority of Americans have peanuts saved for retirement. It’s going to be interesting to see how it plays out with more and more people trying to survive on SS. Though I guess a lot of baby boomers have pensions - so Gen X will be the first to experience poverty in old age (after living through all the financial she a bigamy’s of hypercapitalism starting in the Reagan era).

I just discovered you can temporarily take out money against retirement accounts for 60 days. I may end up using that to bridge a gap between buying a new place and selling my current one. Though as others have noted, I do feel like we are at another peak - so if you are looking to buy first place, I would wait a year or two. Unless you’ve been through a housing crash, you don’t understand how drastically prices can fall.

What is the median balance?

Vanguard recently released its 2019 edition of “How America Saves.” This excellent publication summarizes the statistics for the defined-contribution plans that the company administers. Vanguard tends to administer larger plans, so they are often better designed than average, and participants typically have higher incomes. In other words, it presents the best face of the 401(k) system.

In 2018, the average account balance was $92,148; the median was $22,217. The big difference between the median and the average is due to a small number of accounts that have really big balances. Average balances are more typical of long-tenured more affluent participants, while the median balance represents the typical participant.

401(k)s can offer two types of loans, general purpose and primary residence. The GP shouldn't require documentation, and you could have up to 5 years to pay it back. The PR will require documentation (sales contract/purchasers agreement), and you could have up to 15 years to pay it back.

Loans repayments are taken on an after-tax basis. You pay yourself back with interest, typically prime rate + 1% each pay period. If you leave your company with an outstanding loan balance, you’re give anywhere from 30-90 days to pay it back. Otherwise, the outstanding amount is reported as income. You pay 20% plus a possible 10% penalty at tax time. Some employers may allow you to make manual loan repayments after you leave the company. Your employer may use words such as loan default and foreclosure, but the terms don’t mean the same thing as when you default on a bank loan or have a house foreclosed on.

401(k) loans are never reported to credit bureaus, will never show up on a credit report, or affect your credit score. A mortgage company/bank will want you to submit proof of your 401(k) balance whether you use the money for a down payment.

I did take a PR loan out years ago so I could pay cash for a little fixer upper. Personally, I felt it was worth it.

One more thing, before you take a 401(k) loan, make sure your employer doesn’t suspend your contributions. Suspension typically lasts 6 months. That extra taxable income in your paycheck could lead to paying more income tax. It’s rare to do for loans, but some employers want employees to think twice about taking their money before retirement. Suspension is mainly for hardship withdrawals. Some companies have started suspending contributions for after-tax withdrawals.

R59, I actually knew this!! I knew something!!!

There are a few folks on here to do give some wrong info, but 99% is invaluable.

And yes all, I am now looking for a home again- But in southern Maine on the coast.

And I have a meeting with a mortgage specialist next week

Let's see how this goes!!!

Good luck, OP!

[quote] R69: The majority of Americans have peanuts saved for retirement.

What a waste!

It is because young people are stupid. When you start a job you should be putting as much as you can in 401k. I should correct that not all young people are stupid. I know some who are gaming the system. They put the max in 401K to reduce their income to the point they pay zero taxes. Put it this way. If you put 18000 in a 401K at 21 and never invested again you would have more than someone who started at 35 and invested every year.

R77, I don’t think that’s gaming the system.

No one "owns" a home until it is paid in full. Until then, you are "renting" from the bank and the bank does not have to fix shit when it breaks. You do. I know SO many people who bought homes who now regret it. Even my sister has said, "a house is a thief" meaning that it will rob you blind. I would love to try to buy a house, but I cannot afford it, nor do I want to be house poor. I would not buy right now.

R79, that’s just wrong. I bought my home in 1992. It’s now worth ten times what I paid for it.

Your idea that you doesn’t own a house when you have a mortgage is just wrong. I owe $200,000 on my home. But I have that $200,000 in the stock market where I make more on it than my mortgage rate. I could pay it off, but prefer not to.

Why would you think the bank has more ownership than you do?

When I turned 30, I was putting 6% into my 401k and decided that it wasn’t going to be enough, so I upped it to 10%. When I turned 50, I dropped back to 6%, but only to get the employer match. If there was no employer match, I would have cut back to $0 at that point.

r79 - so the difference is you do Own the home. You are paying off a loan for the property but it is in your name with a lien on it. That just means if you sell the house the bank is entitled to the portion of the loan you still owe from the proceeds. Banks only take ownership of a home if you default on a loan. The whole concept of a loan is to give YOU ownership of the home. Along with that comes maint. You have to fix the roof if it leaks, replace the HVAC if it breaks, etc. Well, you don't have to but if you want the equity out of your home it is in your best interest to fix those things.

Even if you rent - the owner of the property has to pay insurance, taxes and maint on it and you can be damn sure he or she is passing those costs to you in rent charges.

Don’t believe the Bragging Barbies on here who claim you always make money in real estate and the stock market. Working in bankruptcy, I can tell you that’s what all of my clients thought. There are huge swings and it depends where you are and when you invested (ex, 1995 vs 2008, SF vs. Chicago). Don’t feel pressure - especially since we ARE in a peak - to buy right now.

I haven’t read anybody who claims you can “always” make money in whatever.

You might make too large a salary to qualify for one, but you might consider looking into an FHA home loan. These loans are for first time home buyers. Then your down payment would only be 3.5%. There are a few downsides (long-term mortgage insurance, which is typically about 1-2% of your mortgage payment). But the upside is that you wouldn't need to borrow any money for your downpayment. FHA mortgages are usually assumable, which might be an asset during a housing downturn if you needed to sell at that time. The fact that housing is expensive in the Boston area might mean that a larger salary would not necessarily disqualify you there.

I did that (took out an FHA loan) 30+ years ago when I was just about 30 years old. (Just as a point of history, mortgage interest rates at that time were 9.5%!!!) Ultimately I moved, rented out that house for seven years, and then sold it to my tenant. I parlayed the money that I took out of that house into the purchase of a rental home in my new city. I paid off that house in 10 years, and then bought a second rental home, which should be paid off in about 5 years, using money I borrowed from a whole-life insurance policy for the down payment and renovation money. I was not a diligent saver in traditional vehicles, so this will have to be my retirement income. Right now, the houses bring me about $2200/month in rent, and I charge under-market because I like my long-term tenants - they are clean and dependable. But even though I plan to move into my paid-off house sometime in the future and will lose the rental income from that house, I can raise the rent on the other house to market value and still bring home about $1500/month income from just that one.

If I had your savings account I would wait for the next crash which btw is way overdue. Buy low and sell high. Don’t take money out of a 401k until you’re retired. My house has more than doubled in value since buying in 2011. I live in MA and the house prices are getting insane. I would not overpay right now.

r86 the real estate crash will probably not repeat like it did the first time. Before they were giving out loans like candy. People were over appraising houses and doing a drive by appraisals. That doesn't happen anymore.

R87 you have a point. I don’t think there will be such a massive crash but prices will come down. They cannot keep going up. I don’t know how people can afford to buy at today’s prices. Perhaps it will just plateau for a decade. In any case, who knows what is coming but boom and bust is as real thing.

I as well took out a 401k loan for a down payment and it worked out fine (about $30,000). My strategy was though, I took out the loan for 36 months, and stuck the funds in a CD and continued to rent for the 36 months. It was a tight 3 years, but at the end I had the $30,000 in the bank with the 401k loan paid off.

It was more of a way to force myself to save. There was some opportunity cost (5% 401k loan vs the 6% I would have made on the market at the time - but of course interest for 401k loans are actually paid to yourself not a bank). So in the end I had to pay for that 5% growth rather than get it "free" from rising stock prices.

R88, I remember people saying what you wrote, exactly, in the early 1980s!

The history of Boston housing, as I recall from the late 1970s...

The late 1970s to early 1980s, there was a lot of arson in Boston. Neighborhoods like the Fenway and the South End, IIRC. I don’t recall exactly why, but it had something to do with dislodging tenants so that rental units could be condominiumized. There was a bad crash in prices between about 1988-1992. I recall because I bought my place in the Gay South End 1992. The seller had bought in 1988, and sold for $1000 less than she bought. It’s all gentrified now. The two burnt-out buildings across the street have been refurbished, etc. I liked it better then, with character.

During the Great Recession, prices paused, some receded a bit, but not much. Then charged ahead. My place is worth about ten times what I paid for it now, and I haven’t done a lot of renovation.

I have heard “prices can’t keep going up like this” since 1994, but they have, so who knows? I don’t think you should wait for a pause.

Hello everyone, OP here- Well. Even after having my job threatened last night (Friday) at 7 PM along with my fellow sales reps (I work for a very abusive and quite horrible company) I decided to say FUCK the fear (and I have had a lot of fear issues in my life), and I put an offer on a little place on the Maine coastline- It is rough around the edges, but the minute I went inside I knew I had found my home. And it is TRULY AN INVESTMENT. It was crazy. Just crazy. And I am paying 150 grand less by moving to Maine. (Higher taxes though, but I will deal) This has all been fast, effortless, and I have never had so many odd signs- I may tell the story one day but you will all abuse me like Marianne Williamson- its that spacey. I don't know if any of you have specific animals that show ups in your life as signs? I always have and it was just too crazy. And then, the neighbors are some of the happiest and coolest people I have seen. Then there was the requisite DL Trademark hottie who comes over asking if we are renting the place as he needs a place to live. Then a gorgeous blonde (female) triathlete with almost the same name as ME saying that the neighbors are all awesome, have dinners together... And no, this area is not homophobic at all. It's pretty damn gay. And I am NOT taking a loan from my 401K. I am putting 10% down (I have been approved for 5% down- which is tempting because the place will need some work) So now waiting on offer to be accepted and then the home inspection next (little worried) But the place is a good deal, and I am willing to make some allowances I think- Thank you all for your advice and help. It was great and invaluable. I have a decent mortgage approval and I am waiting on another company to give me numbers (a friend of a very good friend actually works there!!)... Theres a little more to everything that makes this a mystifying experience, but I am going to leave it here with just a Thank you-

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I strongly agree with R27.

That is what I did.

Took out a 30 year mortgage and whenever possible I paid extra specifically toward the principal. I used the amortization schedule to pay additional principal amounts that allowed me to see how many payments I was covering.

My reason for this was that in case something happened with my job or there was some financial emergency I would be paying the smaller payment amount, but if my financial situation was better, I could pay it down.

“The $10,000 mailbox”

I saw about 40 places in my small neighborhood, usually at open houses on my own. Spring is selling season here, and I’d just about give up. My realtor showed me one place and said, “all you need is a new kitchen and bathroom and new floors and you’re set!” I’m handy, but that was ridiculous.

I went to an open house at one place. It was a nice spring day and the realtor bailed, so I didn’t get in. The mailbox was broken and doorway was dirty, so I thought, “oh, another dump like all the other dumps” and crossed it off my list. A few weeks late, my realtor wanted to show it to me. It was EXACTLY what I wanted. And the price was $10,000 less than it was when I went to the cancelled open house,

We dickered a little, and I bought it. I’ve now been here 25 years.

Oh, OP, I’m happy you’ve found your dream house! Good luck!

They have accepted my offer!!!

Ever tried to find a good paying job within 45 miles of Maine?

I have never seen one! But I DO believe in miracles!!!

Let's do this!

Gofundme will be set up shortly.

Congratulations, OP!

Go for it op, these 401Ks are a big con anyway.

How are they a con? I think you’re ridiculous.

Fuck my job. Fuck being in my 40's- FUCK RETIREMENT!!

I am living for now. Truly, this deal was too good to pass up-

And the serendipitous shit that went down that lead to it, was something I will take with me for the rest of my life.

I really would love to help others grab some hope. One day I will share the story.

For real all, you have always been some great folks and even if 30% of us here are trolls, assholes, and sociopaths. the MAJORITY of you all have always been the funniest, smartest, and kindest people I could ever encounter in person or through a computer screen. I remember joining this place right after 9/11- it was a great comfort to me.

And I was looking outside this afternoon, of my current place which is a rental in a ritzy, wealthy Oceanside town. I probably live in the smallest home in the entire town, of which there are maybe 10-30 renters- if that-

And I have been so blessed having a yard that was not fenced in--it just doesn't happen here- it is wetlands behind my backyard- I have had everything- gray foxes, red foxes, rabbits, deer- babies, bucks, doe's- I saw my first possum after 3 years just last week, chipmunks, and skunks- which have the cleanest white stripe you could ever see!!

When I signed paperwork today and came home before it was accepted, etc., I looked out and saw something I had never seen before- a baby rabbit. Never, had I seen in all these years- a baby rabbit-

And I knew that it was time to move on. And I also realized how blessed I was to be in a place without fences- that let all of these wonderful creatures into my life. Nothing here would have been as wonderful if fences blocked out the only things that really mattered to me.

And that is that.

OP, you’re having a manic episode. I suggest some bicarb and rigorous pray and reflection. And lay off the sauce until tomorrow.

I meant everything I said!

One beer. No manic episodes.

Did you say that you bought a house without a job already in place? As in: you’re going to have to quit your current job and find a new one relatively close to your new house?

That’s some ballsy shit.

I trust in OP!