Newbie here and plan to start soon. Questions about 401k and equity.

[Account Closed]

Hello! My husband and I are learning how to invest our money into real estate. Right now we have about $5k in equity in our home, and $17k in 401k. Great credit, we have also been approved for an investment loan.
My first question is, What do you think about using our 401k or equity as part of a down payment? If so, how do we do it? Honestly, I'm not sure which steps to take first. There is a house we are interested in, to buy and hold and rent it out. The owners inherited it and is planning to sell very cheap, around $40,000. It's a nice little 3 bedroom house but needs work- electrical, hvac, windows, pipes, maybe roof. I feel like it can be a great opportunity to start with.

[Heather DeGeorge]

You can borrow against your 401k.  The limit for you is going to be half of the value ($8,500).  The max you can borrow--ever--is $50k.  So even if the value of the 401k is $300k, you won't be able to borrow more than $50k.  So you can take out $50k or half of the value--whichever is lower.  And we almost always borrow against ours.  The caveat is this: if your husband's company dismisses him or he leaves for any other reason, you need to be prepared to pay that amount back in full.  So keep that in mind.  Otherwise, you pay interest back to yourself--which is nice.

The other thing is that when you borrow against the 401k, you are then limited in your borrowing ability against the 401k going forward.  Because if you take the rule above about how much you can borrow total, you now have to subtract your highest balance in the past 12 months from that amount.

So if you were actually able to take out $50k and borrowed $30k but have now gotten a windfall 6mo later and paid that $30k off but wanted to take another loan against the 401k at the 9mo mark, the max you could take would be:  $50k - $30k (highest balance in the last 12 mo period) = $20k.