401(k) Funds For A Mortgage Downpayment? Consider other options first.

Chantilly area home buyers, like home buyers everywhere else in the current environment, are experiencing the more historically “normal” down payment requirements.  So people are looking for ways to get the downpayment funds.

There are alternatives to a 20% to 25%  down payment amount, so it’s important to do the research.  For example, we discuss some of these options in a recent series (“Getting a Mortgage“) on Chantilly Radio.

In the current environment, some buyers are looking at 401(k) plans for downpayment help.

Getting to this money is doable in many cases, but that does not necessarily mean it is your best option.

It is important that you weigh the advantages against the disadvantages.  One of those negatives deals with taxation.

If you take a loan against your 401(k), and you don’t repay according to the loan terms, the withdrawal is taxed as income.  On top of that, you will get a 10% penalty for people under 59 1/2.

Also, remember that if you do repay the loan right on time according to the loan terms, you’re still dealing with a “double taxation” situation.

• Taxation #1 occurs when the loan is repaid using post-tax dollars
• Taxation #2 occurs upon final withdrawal at retirement

You may not want to eliminate this as a possibility, but just carefully consider whether there may be a better alternative.

If you are working with a qualified financial planner, get their input before you make the move.  If you want to get more info on the Virginia first-time home buyers program or any of the other recent efforts to assist home buyers, just give me a call and I will help in whatever way possible.

Topics: Using 401)k) funds for mortgage downpayment