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So you want to buy a home...But...
There is just something standing between you, and your new house: The down payment, the closing costs, or both.  What options are out there for you?

Many home buyers today opt to use funds from their employer?s 401(K) program to come up with the down payment or closing costs on a house.  Ordinarily, you can't take money from your 401(K) plan unless you retire, leave the company, or become disabled.  But, many company plans permit certain ?hardship withdrawals? when there is an immediate and heavy financial need, including the purchase of a principal residence.

The drawback to a hardship withdrawal is that you will pay taxes and penalties on the amount withdrawn from your plan, which often must be paid at the time of withdrawal, or at tax time for the year of withdrawal.  And while hardship withdrawals are allowed by law, your employer is not required to provide them in your plan.  So it is very important to check with your employer?s human resources department ahead of time to be sure your 401(K) plan allows hardship withdrawal. 

Another approach may be to borrow against your 401(K) ? often as much as 50 percent of your account balance.  You pay interest on the loan, but the interest goes back into your account.  The money you receive is not taxable as long it is paid back and plans can give you anywhere from five to 30 years to pay back your loan.  The payment will NOT be added in as another debt on most loan programs.   

There are risks involved in borrowing from your 401(K).  If you lose your job or leave your employer, you may have to pay back the loan in full within a short period, sometimes as little as 60 days.  If the money is not paid back in that time, it is considered a withdrawal from your plan and subjected to taxes and penalties.  And while 401(K) accounts can usually be rolled over into a new employer?s 401(K) without penalties, loans from a 401(K) cannot be rolled over.

In addition, because the funds withdrawn from your account may no longer earning compound interest, your account will be smaller when you retire.  And you?ll be replacing pretax money with after-tax money.  Check with your 401K manager regarding this. 

So, call your Human Resource Department and get the information, then pick up the phone and call, text or email me and let's see if we can make this work!  I do have lenders that will not count the 401K loan against your debt ratio.  That is the benefit to being a Broker and having a variety of lenders to work with.  Sherry Bitner 941-504-1445, Sherry@SherryBitner.com

 


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