darkistheway
Member
Yeah, that's why I would consider it medium risk. In general. Certain markets at certain price points are a no-brainer but a lot of real estate hotspots are due for a correction.
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Taking out money from 401K for home down payment
- Thread starter Rookje
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Zantetsuken
Member
I wouldn't. Especially if it isn't in my name only. Good friends don't turn out to be so good when living together.
Bluecondor
Member
You should really think through the worst case scenarios of making a major investment like this with a friend.
While people love to assume that things are going to go well, what happens if you take out a mortgage on $700,000 now and then three years from now or five years from now either of you needs to get out of this? Think about it - this could happen for any number of reasons from one of you losing your job, one of you having to move away because of a job. And, if either of your personal situations change (family responsibilities, serious dating partner), this could happen as well.
For me, the worst case scenario to keep in mind is that any number of these things could happen to your friend - which would then put you in a very awkward situation. You would be in a position in which you would feel obligated to give a friend a huge break and let him "buy" himself out (probably for a fraction of what he actually owes). Or, you would feel pressured to sell the house quickly, which would almost certainly lead you to lose a lot of money.
Then - to make matters worse - you financed this with money from your 401k. So, now you are left with the remainder of a huge loan - with no real hope/prospects of getting back on track with your 401k.
I wouldn't do it. No way.....
While people love to assume that things are going to go well, what happens if you take out a mortgage on $700,000 now and then three years from now or five years from now either of you needs to get out of this? Think about it - this could happen for any number of reasons from one of you losing your job, one of you having to move away because of a job. And, if either of your personal situations change (family responsibilities, serious dating partner), this could happen as well.
For me, the worst case scenario to keep in mind is that any number of these things could happen to your friend - which would then put you in a very awkward situation. You would be in a position in which you would feel obligated to give a friend a huge break and let him "buy" himself out (probably for a fraction of what he actually owes). Or, you would feel pressured to sell the house quickly, which would almost certainly lead you to lose a lot of money.
Then - to make matters worse - you financed this with money from your 401k. So, now you are left with the remainder of a huge loan - with no real hope/prospects of getting back on track with your 401k.
I wouldn't do it. No way.....
The way to maybe do it marry your friend and have a pre-nuptual? That way you have some legal protections and well defined what if scenarios. Then you get some great tax breaks and discounts on healthcare too! What was the show where friends married for the tax benefits/healthcare?
And no I'm not serious...But maybe I am.
And no I'm not serious...But maybe I am.
AlteredBeast
Fork 'em, Sparky!
a 750k house is totally unnecessary, hot damn!
If you are POSITIVE that it will skyrocket in value (not sure how likely, considering most housing markets are already above where they were before the housing bubble burst of the oughts) then I could see it, but otherwise, that kind of monthly mortgage payment is downright stupid. If you have that kind of disposable income, put it in the market until Trump's bullshit finally gets it to go down. There has never been a better time to invest than now.
and considering trusting a friend makes me question how you were smart enough to put 150k into 401(k) in the first place...no offense!
If you are POSITIVE that it will skyrocket in value (not sure how likely, considering most housing markets are already above where they were before the housing bubble burst of the oughts) then I could see it, but otherwise, that kind of monthly mortgage payment is downright stupid. If you have that kind of disposable income, put it in the market until Trump's bullshit finally gets it to go down. There has never been a better time to invest than now.
and considering trusting a friend makes me question how you were smart enough to put 150k into 401(k) in the first place...no offense!
The Lone Courier
Member
Whats the setup of the house? How many bed ,bath, etc?
AlteredBeast
Fork 'em, Sparky!
Hey, OP, is your work tied to where you live? I bought a 5 bed/4 bath house last year for a third of your house. If you could live anywhere, it absolutely would never be worth spending that much money on a house.
That would be a terrible mistake. You're on a good path with your 401k, but you really need to sit down and see what that would do to your retirement plans. It will set you back further than you probably expect.
If you plan to retire at 62, in 30 years, that 401k would be worth $1.2m, assuming 7% growth per year. That's what you are subtracting from your retirement, not $150k.
Don't go deep into debt with friends. Just don't.
If you plan to retire at 62, in 30 years, that 401k would be worth $1.2m, assuming 7% growth per year. That's what you are subtracting from your retirement, not $150k.
Don't go deep into debt with friends. Just don't.
highrider
Banned
Fenderputty
Banned
Ace Harding
Member
ITT people don't understand the California real estate market. $750k is probably an average home where OP lives.
That said, don't do it. As others have pointed out, regardless of the 401k issues buying a house with a friend is very risky. Doing that with a 401k loan financing most of your equity just amps up the risk.
Wait until you can afford it by yourself or with a life partner. I know it feels like you are throwing money away on rent but when you buy a house you are paying a lot in interest and taxes. And if something goes wrong you could get completely fucked.
Your 65-year old self will thank you.
That said, don't do it. As others have pointed out, regardless of the 401k issues buying a house with a friend is very risky. Doing that with a 401k loan financing most of your equity just amps up the risk.
Wait until you can afford it by yourself or with a life partner. I know it feels like you are throwing money away on rent but when you buy a house you are paying a lot in interest and taxes. And if something goes wrong you could get completely fucked.
Your 65-year old self will thank you.
ZackieChan
Member
Also, you need to look at the TRUE cost of owning a home that expensive. I guarantee it will be higher than your rent. You're probably better off continuing with retirement savings and looking for work in a cheaper place where housing is more affordable.
Glass Shark
Banned
One and done. Borrowing from your 401k is one of the stupidest financial decisions you can make. And you're obviously in a good place financially, so don't ruin it.
Pulling money out of your 401k to buy a house with a friend is a terrible idea on two fronts. If you've put that much in a 401k you're capable of saving more than $20k, and if you aren't then a house that's three quarters of a million dollars is just out of your price range.
And buying a house with anyone but a spouse is an awful idea. What happens when one of your wants to move? What happens when one of you gets married? This is the biggest financial decision of your life so far, you need to be in full control of it.
And buying a house with anyone but a spouse is an awful idea. What happens when one of your wants to move? What happens when one of you gets married? This is the biggest financial decision of your life so far, you need to be in full control of it.
Byakuya769
Member
You can pay yourself interest to try and compensate for that.
I'm more worried about the going half on it with a friend.
This isn't true at all. He will be paying 10% penalty and taxes on top of that. The only way to do it penalty free is by borrowing from your 401k which has some rather large pitfalls like what happens if you change jobs. OP needs a lot of money and the term is usually only a few years too, so there goes the monthly rent savings OP wants
LocknessMobster
Member
Could you expand on this? Gonna be doing this myself soon.
whatsinaname
Member
Breaking 401k to make down payment - bad decision.
Buying with a friend - worse decision.
Buying with a friend - worse decision.
he is wrong, that doesn't apply to retirement accounts. The only exemption is you can withdraw $10k from an IRA for a down payment, not a 401k
Lasthope106
Member
Move to a different area OP. I don't think it is wise to raid the 401k for such an expensive house. What really made this a no go for me is the idea of doing it with a friend. Nothing good will come of it.
ClosingADoor
Member
Don't buy a house with a friend. What happens when he loses his job and can't make payments? If living with him sucks? If one of you wants to move? Bad idea.
Don't.
Taking out of your 401k you get penalized and then taxed out the wazzoo after that and THEN you need to claim that when doing your taxes at the end of the year. It isn't worth it if you can just wait a few more months saving from paychecks or buying a cheaper house.
Also, rethink buying a house with a friend. I bought a house with my then girlfriend, now wife, but we both knew we were going to get married. We lived with each other for a year prior and can stand each other just enough to live together peacefully.
Taking out of your 401k you get penalized and then taxed out the wazzoo after that and THEN you need to claim that when doing your taxes at the end of the year. It isn't worth it if you can just wait a few more months saving from paychecks or buying a cheaper house.
Also, rethink buying a house with a friend. I bought a house with my then girlfriend, now wife, but we both knew we were going to get married. We lived with each other for a year prior and can stand each other just enough to live together peacefully.
That was a joke, we get along very well.
Skellig Gra
Member
Unless this "friend" is actually a long term companion/lover I wouldn't even remotely consider doing that.
ITT, people who don't understand 401(k) home loans and those are unfamiliar with home prices in popular locations.
Borrowing $50K from your 401(k) for a down payment is generally a smart move (and isn't subject to penalties). SoCal is expensive, but property values are unlikely to go anywhere but up.
The friend thing, well, have a good contract drawn up. I don't know the details of your situation there.
Borrowing $50K from your 401(k) for a down payment is generally a smart move (and isn't subject to penalties). SoCal is expensive, but property values are unlikely to go anywhere but up.
The friend thing, well, have a good contract drawn up. I don't know the details of your situation there.
This is ONLY true if you take a loan from your 401k (the no penalties part, but you still have to pay back interest to yourself). This is VERY different than withdrawing money from your 401k.
Edit: You used clear language in your post and are talking about borrowing from your 401k. The OP used the word withdrawal. These are not the same thing.
The Salt Life
Banned
#1 rule about a 401k
Is never take money out of a 401k
I'm broke as shit but have $65k in mine.
It's your retirement
You get heavily penalized if you touch it now and I'm pretty sure you're expected to pay it back.
Is never take money out of a 401k
I'm broke as shit but have $65k in mine.
It's your retirement
You get heavily penalized if you touch it now and I'm pretty sure you're expected to pay it back.
MiketheBSG
Member
Don't do it. Bad move.
Well I learned something, I didn't realize there was no withdrawal penalty if you pay back your loan to yourself from your 401k.
Still seems like a terrible idea, since if you lose your job and can't pay it back you then get hit with the penalty on top of losing your job.
Plus don't buy a house with someone you don't see yourself still having sex with in 10 years.
Still seems like a terrible idea, since if you lose your job and can't pay it back you then get hit with the penalty on top of losing your job.
Plus don't buy a house with someone you don't see yourself still having sex with in 10 years.
Why don't you get an FHA loan? Then you only need to put down a minimum of 3%
Frustrated_Grunt
Member
Going into a property with a friend in this scenario would be an ordeal.
iPaul93
Member
The Horror the horror
Banned
Listen to this man, here.
I wouldn't get into this with a friend, though. Contract or no contract. In fact, I wouldn't get into this with family (other than a spouse).
Shake Appeal
Member
Do not take money out of funds for your downpayment. Absolutely under no circumstances take out a loan for your downpayment.
If you can't afford a 20% downpayment right now, save, wait out the next downturn, then buy.
If you can't afford a 20% downpayment right now, save, wait out the next downturn, then buy.
It's almost never a smart move to take a long-term 401k loan, it is a desperate move. For starters, $50k is the max and OP needs more than that. You lose out on the gains from the $50k investment, and no, interest to yourself is not likely to make up for it -- 1) it is low interest and 2) its coming out of your pocket (after tax, unlike even mortgage interest) so it isn't a gain. On top of all that, if you switch jobs you probably need to come up with the balance within 60 days or default and pay the 10% penalty + tax for early withdrawal. It's better than borrowing at a high interest rate from a bank, that's about it.
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