Did you know you can borrow from your 401k plan to bolster your down payment for a home? It’s a way to access additional funds that are already yours without involving a bank. While it’s natural to be cautious about tapping into retirement savings, weighing the long-term implications is essential, especially if you’re eager to become a homeowner sooner rather than later.

Finding funds for a down payment can be stressful, whether you’re a first-time buyer or navigating simultaneous buying and selling transactions. Your 401k is just one option among several, including gifts or loans from family, assistance programs, or low down payment mortgage plans like FHA loans.

Consider these key points if you’re contemplating borrowing or withdrawing from your 401k:

Borrowing from Yourself:

• Verify if your 401k plan offers a loan option.
• Typically, you can borrow up to 50% of your vested account balance, with a maximum of $50,000.
• No credit check is required, but your mortgage lender will consider this loan when evaluating your mortgage application.
• Repayment is usually required within five years, with automatic deductions from your paycheck.
• Leaving your job before repayment may necessitate full repayment within a short timeframe to avoid penalties.

Withdrawing Funds:

• In-service withdrawals for a home down payment may have stringent restrictions.
• Early withdrawals may incur income tax and a 10% federal tax penalty if you’re younger than 59 1/2.

Borrowing from your 401k can be a viable option for many buyers compared to a complete withdrawal. Consult with your tax advisor and mortgage lender to understand specific ramifications. If you’re considering a 401k loan to realize your homeownership dreams, I’m here to discuss your financing options further whenever you’re ready. Feel free to reach out.