It’s the classic American Dream – you find your perfect home and are ready to make an offer. You have some money saved for a down payment, but in the back of your mind, you consider borrowing from your 401(k) to make up the difference.
Pause and think before touching that sacred retirement money! If you have to borrow from your 401(k) to make a down payment on a home, be honest with yourself and consider whether or not you’re really ready to become a home owner.
Homes rarely come hassle free – they often require expensive repairs and upkeep. Also, if you borrow from your 401(k), you are supposed to pay yourself back. While this is great in keeping you honest, what happens if there is an emergency with your home? Now you are stuck paying back your 401(k) and you still need to come up with money to handle the unexpected home expense. And if you fail to pay back your 401(k), you may face taxes and a 10% penalty if you’re under age 59 ½.
At the end of the day, you should know if you’re financially ready to purchase a home – just make sure you’re well prepared so that dream house doesn’t become a financial nightmare.
The information on this page is provided for educational purposes only and is not tax, legal, financial planning or investment advice. Neither the information nor any opinion expressed in this section constitutes an offer to buy or sell any securities or advisory products. The information provided is general and is not information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security. You should not regard this information as a substitute for the exercise of your own judgment. Investing involves risk.