Borrowing out of 401k for Primary Residence Mortgage

[talisman]

Need some advice. Started home shopping again after keeping an eye on the market for the last year. I'm thinking about taking 15-20k out of my 401k as a down payment, since it would be repaid as a loan to myself. The downside to this, is that there is less money in the account to build on while it is being repaid. So, my question is, is there a decent way to figure if this is going to be beneficial to pay interest to myself in lieu of the 401k making money, or is it a bad idea all together? I suppose the way I'm looking at it, is paying back into it is guaranteed, (and technically free, unless the account would be making more than I am paying back into it) whereas returns under investments are not. Of course, that might be a terrible way of looking at it, which is why I'm asking the gurus on here. Thanks, gentlemen.

[mstng86]

I think a lot of it depends on how much you are taking out and how fast you are paying it back. I am going to be doing this for our home we are buying right now, but I am only taking out about a years worth of contributions. So I don't see it being a long term concern.

[03mustangdude]

dont you have to pay taxes on it for it to come out?

[talisman]

dont you have to pay taxes on it for it to come out?

According to what I've read, the loans are tax free so long as they are repaid by the terms and conditions. I'm having a hard time finding a downside, which has my "Too good to be true" radar going off like crazy; hence the thread.

[mstng86]

You may want to find out if you can still contribute while paying back the loan.

[Shorty]

I'm thinking about taking 15-20k out of my 401k as a down payment

That's just the 3.5% for a FHA loan right? CHOOOOO$$$$$$$ CHOOOOO$$$

Is the return on your 401k < the rate you'll get on your loan? (I hope not.)

[mk5.0]

Need some advice. Started home shopping again after keeping an eye on the market for the last year. I'm thinking about taking 15-20k out of my 401k as a down payment, since it would be repaid as a loan to myself. The downside to this, is that there is less money in the account to build on while it is being repaid. So, my question is, is there a decent way to figure if this is going to be beneficial to pay interest to myself in lieu of the 401k making money, or is it a bad idea all together? I suppose the way I'm looking at it, is paying back into it is guaranteed, (and technically free, unless the account would be making more than I am paying back into it) whereas returns under investments are not. Of course, that might be a terrible way of looking at it, which is why I'm asking the gurus on here. Thanks, gentlemen.

I have done this myself in the past. And you are basically paying yourself interest which is not a bad thing. You could also factor in the stock could drop and you would minamize your lose while still making the money on the interest payments.

[talisman]

That's just the 3.5% for a FHA loan right? CHOOOOO$$$$$$$ CHOOOOO$$$

Is the return on your 401k < the rate you'll get on your loan? (I hope not.)

lmao, this will be my third home purchase. If only I was that ballin' out of control! My dog has been giving me eyes like she wants a BBQ party lately.

401k has had double digit percentage increases over the last 2 years, but has been falling back lately. Not sure how long it could maintain that type of growth anyway.

[mk5.0]

You may want to find out if you can still contribute while paying back the loan.

In my 401k plan you can still contribute like normal while the loan is being paid back.

[bcoop]

lmao, this will be my third home purchase. If only I was that ballin' out of control! My dog has been giving me eyes like she wants a BBQ party lately.

401k has had double digit percentage increases over the last 2 years, but has been falling back lately. Not sure how long it could maintain that type of growth anyway.

Wrong. This will be your second home purchase. Apondos don't count.

[talisman]

Wrong. This will be your second home purchase. Apondos don't count.

Then the third one won't count either, more than likely.

[Geor!]

Loans are tax free, and the interest paid is paid back to yourself, but you better make fucking sure you still have that job while the loan is still outstanding. A short-term solution for a few grand might not be a bad idea. Not sure I'd borrow 10-15 though.

[turbostang]

According to what I've read, the loans are tax free so long as they are repaid by the terms and conditions. I'm having a hard time finding a downside, which has my "Too good to be true" radar going off like crazy; hence the thread.

Eric - this is exactly what I did and almost exactly the same amount you're talking about.

No taxes unless you terminate employment or close the account.

[talisman]

Job is pretty secure, and definitely won't be closing the account. Would also be looking at a 2 year repayment, so if things did change with the job I should still have it back together quickly.

[Chas_svo]

The other thing to consider is that you are putting "taxed" dollars back into your 401k. I've heard this argument, and it has some merit, but I did the same thing on my first house, and would do it again.

That is about the only thing I would use a loan fom my 401k for though.