Should I Borrow From My 401K to Buy a Home?
If you want to buy a home but are short on the funds, you might be trying to think of ways to come up with that money. One option many people consider is whether or not they should borrow from their 401K plans to finance a home purchase. Here's what you need to take into consideration before you decide:
How Quickly Can it Be Paid Back?
If you take out money from your 401K, you need to be mindful of the penalties if you don't pay it back. If you make no payments for 90 days, you will be taxed as if it's income and at a rate of 10% if you're under the age of 59 1/2.
Consider the Retirement Loss.
When you borrow money from your 401K, that money is no longer making money as it would if it were sitting in your retirement account. Make a pro and con list when you're deciding and see whether or not you'll ultimately gain or lose money.
Research Other Options.
Do you have other options on how to come up with the funds to purchase a home? If so, those might be worth looking into. Borrowing from your 401K can be great if you can repay the loan back quickly, but more often than not, that could be tricky.
If you're having a hard time deciding whether or not you should borrow from your 401K, talk to your lender. He or she will be able to help you make a decision that is the best option for your unique financial situation.