Down Payment from 401(k)

Nef Cortez

By Nef Cortez

Achieving the American Dream of owning your own home requires planning ahead, and a lot of discipline.  The American Dream for many is getting further and further away from their reach, as prices continue to increase.  The Dream Home, having “nice curb appeal” (appearance of the front of the home as viewed from the street), and a nice back yard for the kids to play in or for the Buyer to entertain their guests, is getting more and more expensive.

As prices increase, so does the amount of money necessary for the down payment. The traditional 20 % down payment for many is just totally not achievable.
The median sales price of a home (where 1/2 of the homes sell for more and 1/2 of them sell for less) in Diamond Bar is approximately $725,000.  The “pre-requisite” 20% down payment would amount to a whopping $145,000.00.  Most first time home buyers do not have this kind of cash.
Typically, if the buyers do have money saved anywhere, it is in a 401(K) retirement plan.

Many potential homebuyers are unaware that they can use the money they have invested into their 401K retirement plan as the down payment for their first home.  Most first time homebuyers are under the age of 59 ½ , which is the point at which one can begin to withdraw 401K retirement funds without penalty, typically 10% of the amount withdrawn.

One option for the withdrawal of funds without penalty is to borrow against your retirement plan and pay back the fund over time. The payments that you will be making over time will be back to yourself (via the plan). This allows you to eliminate the 10% penalty for early withdrawal, and more quickly get you into the track of homeownership.

I advise that you first down down and with your tax professional and have them guide you through the process before you initiate any withdrawal from your 401(k).

This article was written by Nef Cortez, a licensed Real Estate Broker, Cal BRE # 00560181 since 1976. He can be reached via e-mail at nefcortez@gmail.com. Please feel free to email any questions regarding real estate.