San Diego, CA (PRWEB) September 20, 2013
LoanLove.com is a borrower advice website that provides detailed insights into the mortgage industry in a fun and entertaining way. The team at LoanLove.com is devoted to help empower both first time and experienced homeowners with valuable resources, first-class knowledge and connections to top-rated industry professionals and has the mission of helping consumers and borrowers to obtain the latest information on mortgage lending trends, the real estate market and the U.S. financial landscape in order to help them obtain a home loan that they will love. To this end, Loan Love has just recently published an article that discusses 401k withdrawal for home purchase and whether or not this is a good idea.
The article says: “Your 401K is one of the most powerful retirement investment vehicles you have, and the best way to make it grow is to keep investing and leave it untouched until you’re well into your 60s. But sometimes, life throw’s a curve ball and you need a lump sum to meet a major life expense – like purchasing your primary home. In other words, should you use a 401k withdrawal for home purchase?”
It goes on to say: “Taking money from your 401K seems like a good choice – it’s your money, so why shouldn’t you use it? Most retirement blogs or guides you read warn strongly against 401K withdrawals, thanks to penalties and fees for taking your money out early (this is a retirement account, after all). But is it always a bad choice? And what are your alternatives?”
Loan Love explains that there are a few good alternatives that home buyers should definitely consider before withdrawing from their 401k for the down payment on their home. For example, in many cases it is possible to take out a second mortgage, either from the same lender, or from a different lender, in order to cover the cost of the down payment.
Another idea is for the borrower to find out if their lender will approve a larger mortgage, perhaps up to 95% of the value of the home, if they will pay private mortgage insurance (PMI). Loan Love cautions those who are considering this option, however – “PMI will increase your monthly costs – so be sure and add that into your “can-I-afford-this-mortgage” calculation – but it’s one more way to get you into the home you want.”
Lastly, Loan Love suggests that those considering withdrawing from their 401k instead look into borrowing from it instead. The article says: “Many people don’t know they can use their 401K as a source of loans (assuming your employer allows it). In this scenario, your account serves as a lender; you pay interest, but that interest is paid back into your account, to help make up for the earnings you’ll lose by taking out some of the principal. Here, the major risk is that if you lose your job before paying back your loan, you have to pay back the loan in full within a pretty short period of time – usually a couple of months – or else it will be considered a withdrawal and all those penalties will apply.”
Once the borrower has explored all their options they should take time to calculate which one is the best choice for their budget and income. For more information on 401k withdrawals for home purchases, please read the full article on LoanLove.com.