borrowing from 401k for mortgage down payment

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Increase your monthly mortgage payments by $500, treating your 30-year loan like a 15-year loan. You’ll be debt-free six years sooner! And, if you then add your house payment to your monthly retirement contribution, you could retire at age 65 with a paid-for home and nearly $2 million in your nest egg. Make an extra house payment each quarter.

Bad Reasons to Borrow Against a 401k. If you’re borrowing money for ordinary expenses that should be part of your budget like mortgage or rent payments you have a spending problem. These are not unexpected expenses; they are what it costs to live your life. You either need to spend less money or make more, ideally both.

If you’re upside down on your mortgage — owing more than the house is worth — relying on your 401(k) may be a mistake unless you’re sure you can pay the money back on short notice. You can only borrow from your 401(k) if you work for the company sponsoring the fund, and borrowing is the only way you can gain access to the money while you’re still employed.

When you borrow from a 401(k) to buy a home, the decision is based on the premise that a large down payment is needed to purchase a home. That premise is false. You don’t need to put 20 percent.

Using a 401(k) loan for a down payment can be an attractive option, but you have to understand the significant risks involved.

The cost of borrowing against your 401(k) is not the loan rate. which also require that the borrower purchase mortgage insurance from a private carrier if the down payment is less than 20 percent.

Apply for a Low Down Payment Mortgage. Other Ways to Come up with Your Down Payment. While you can’t use a loan for a down payment on a house, here are some other ways you can come up with your down payment. Gift Funds. Some mortgages, like FHA loans, allow for the down payment to be a gift from a friend or family member.

Mark and Katie need to weigh their options as far as the new monthly payment of the home mortgage plus the repayment to their 401(k). It may be more affordable to put up less of a down payment and consider mortgage insurance (or lender-paid mortgage insurance), but that is a whole other discussion.

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