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Buying a Home...need advice.
Old 04-05-2013, 06:51 PM   #1
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Buying a Home...need advice.

Okay folks, I can't believe I'm going to do this, but I'm going to take a little money from a retirement account to put a down payment on a townhome.

My intention is to take the money from my Roth to avoid taxes, but I almost wonder if it's better to do the 401(k) because the Roth has served as an emergency fund ( I know, I know, I'm working to fix that as we speak).

If it matters for anything, I'm looking for townhomes well below the max of what I can afford, so after I close, I'll be able resume full maxing out of my 401(k) and Roth, plus non-retirement account.

Assets:

401(k): $125k
Roth: 27k ($18k can be withdrawn, but my emergency fund will be gone).*
New Brokerage Acct: $1k

* this assumes I take the money out this week. For every month I wait to buy, I can reduce the amount I'll borrow by $1,700 (due to temporary decrease in retirement contributions). Interest rates are unpredictable and the market is getting crazy again (bay Area) so I hope to find something in the next two months.

Advice from experience is greatly appreciated.
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Old 04-05-2013, 06:58 PM   #2
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Originally Posted by 2035 View Post
Okay folks, I can't believe I'm going to do this, but I'm going to take a little money from a retirement account to put a down payment on a townhome.

My intention is to take the money from my Roth to avoid taxes, but I almost wonder if it's better to do the 401(k) because the Roth has served as an emergency fund ( I know, I know, I'm working to fix that as we speak).

If it matters for anything, I'm looking for townhomes well below the max of what I can afford, so after I close, I'll be able resume full maxing out of my 401(k) and Roth, plus non-retirement account.

Assets:

401(k): $125k
Roth: 27k ($18k can be withdrawn, but my emergency fund will be gone).*
New Brokerage Acct: $1k

* this assumes I take the money out this week. For every month I wait to buy, I can reduce the amount I'll borrow by $1,700 (due to temporary decrease in retirement contributions). Interest rates are unpredictable and the market is getting crazy again (bay Area) so I hope to find something in the next two months.

Advice from experience is greatly appreciated.
Why not wait until you can accumulate a down payment? How do you expect your expenses to change after you buy the place?
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Old 04-05-2013, 07:02 PM   #3
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I have to admit, I am having a hard time imagining $18k going very far at all for a townhome/condo in the Bay Area. Besides just the down payment, won't you have HOAs, property taxes, insurance, and closing costs?
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Old 04-05-2013, 07:07 PM   #4
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I have to admit, I am having a hard time imagining $18k going very far at all for a townhome/condo in the Bay Area. Besides just the down payment, won't you have HOAs, property taxes, insurance, and closing costs?
$18k is 5% down, closing costs and other crap fees.
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Old 04-05-2013, 07:08 PM   #5
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Why not wait until you can accumulate a down payment? How do you expect your expenses to change after you buy the place?
My expenses are manageable with pmi, taxes, and insurance.
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Old 04-05-2013, 07:16 PM   #6
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I wish you good luck in this venture. With all the multiple offers and cash-paying investors around, you have your work cut out for you. I hope you let us know how it goes.
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Old 04-05-2013, 08:34 PM   #7
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Can you just take an 18k loan from your 401k?

You can then take advantage of the current real estate market but keep your emergency fund and then pay yourself back on the same schedule that you would have used had you saved $18k for a townhome purchase.
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Old 04-05-2013, 08:51 PM   #8
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Use the Roth.
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Old 04-05-2013, 09:24 PM   #9
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If your job is stable, I think I'd take a loan from the 401K, because you will pay that back to the account. If you take it from the Roth, that money can't be returned to the Roth. That's my take after about 60 seconds of thought.

The caveat is the stable job. If you lose your job, you'll have to pay it all back at once, or take the 10% penalty for early withdrawal. I guess you could pay it back out of your Roth at that point if you have to.

Not sure that either of them is the right thing to do, but I do understand that the market is heating up quickly out there.
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Old 04-05-2013, 11:03 PM   #10
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My expenses are manageable with pmi, taxes, and insurance.
IMO, "manageable" and "pmi" do not belong in the same sentence. If you are really managing your finances you will NEVER consider a loan where you will be paying pmi.
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Old 04-05-2013, 11:03 PM   #11
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I think my job is stable... In fact my boss is encouraging me to buy. :-)
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Old 04-05-2013, 11:17 PM   #12
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I think my job is stable... In fact my boss is encouraging me to buy. :-)
Unless your boss is going to make the payments, this impresses me not at all.

We can all think our jobs are stable, until they are not. Bosses change, and jobs change -- in a heartbeat.

You don't have a down payment unless you raid your retirement funds, which are, by the way, also your emergency funds?

Buying a condo is not an emergency, to my mind. You are, what, nearly 40? Bay Area real estate has gone through these gyrations before. What makes this so important now?

You're closer to your planned retirement date than you are to paying off a loan with a teeny down payment, HOAs, PMI, taxes, and insurance.

But best of luck on whatever you decide and in finding a place where you are the successful bidder.
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Old 04-05-2013, 11:24 PM   #13
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I think my job is stable... In fact my boss is encouraging me to buy. :-)
If I had a house for every time I'd heard that one -- and it went the other way -- I'd be a real estate mogul today.

Not sayin' that's even likely to happen to you (and sincerely hope it doesn't) -- just sayin'... Stuff Happens.

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Old 04-05-2013, 11:27 PM   #14
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You don't have a down payment unless you raid your retirement funds, which are, by the way, also your emergency funds?

Buying a condo is not an emergency, to my mind.
+1. Perhaps the OP is panicking because real estate values are on the rise again in his area, and s/he's afraid of missing an opportunity(?) Dunno.

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Old 04-06-2013, 06:54 AM   #15
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It sounds like it would be a mistake to buy right now, given your assets. I would wait until you are in a better position to put more money down and have more of a cash cushion (non retirement cash cushion). Yes, I know I'm being a party pooper.
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Old 04-06-2013, 07:33 AM   #16
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I think you are all being a bit harsh. For one thing, the OP didn't ask for advice on whether or not she should buy the townhouse but a whole bunch of posters piled on to that issue. The OP asked for advice on the best way to raise the down payment given that her assets are virtually all tax-deferred and tax-free.

With respect to the question the OP asked, a 401k loan is the classic solution to that problem and if the OP were to lose her job before the loan is paid off then she could use the Roth to pay back the 401k loan.
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