Rental Property Investor · San Diego, CA · Member since 2020 · 43 posts · 26 votes
Hello people of bp, i am in the sf bay area and in the process of purchasing my first home. Through the pre approval i come to find out i am about 30k short in available funds in my account , and cant deposit the difference in cash immediately (within one year) . But i do have 30 k in my 401k and am learning i can borrow against it as long as i pay it back. My question is anyone have any good or bad experience with this route? Any thoughts, opinions or concerns would be greatly appreciated. Thanks in advance!!
We did use a SDIRA to invest in a property using non-recourse financing which required 50% down & had a $70k loan min meaning we had to invest $70k to buy a $140k home as a minimum. Because of this we actually cashed out my husbands 401(k) since he had less than $70k in it to use conventional financing with 20% down to get better leverage & buy more homes. This was a good option for us based on our scenario & we didn't have to pay any fees due to the cares act with our situation.
Rental Property Investor · San Diego, CA · Member since 2020 · 43 posts · 26 votes
5y
@Alexander Szikla thanks alex, i figure with the interest rate id be paying myself back with the loan and appreciation of the asset i dont think the difference would be significant in the long run as long as i pay back the loan in time . Thanks for your persective !
Rental Property Investor · San Diego, CA · Member since 2020 · 43 posts · 26 votes
5y
@Onan Dumas thanks onan i figure the compounded interest wouldnt be very significant if i pay back the loan quickly. Plus the appreciation of the asset at an average of 3% it might be worth it to do it. Thanks for the point you brought up i appreciate it! No pun intended!
Plymouth Meeting, PA · Member since 2019 · 34 posts · 12 votes
5y
@Michael Loza taking a loan from from your 401k is a very viable option. You'll want to check with your plan admin regarding fees, but typically they are rather minimal. Plus there's no tax implications as long as it's a loan and not a withdrawal. It will most likely be deducted from your paycheck, so just make sure your comfortable with what your new paycheck looks like calculating in the loan payback. One other piece to note is per my mortgage broker taking a loan from your 401k does not negatively affect your DTI as it would if you were tapping into a heloc, for example. Good luck!
Realtor · Philadelphia, PA · Member since 2017 · 16 posts · 12 votes
5y
@Michael Loza I have done it twice. It’s a great method to acquire a first property (and others for that matter). You pay yourself back interest which comes directly out of direct deposit (tax deductions!). But it’s really straight forward and a great way to break into home ownership, and snowball into investing.
Rental Property Investor · San Diego, CA · Member since 2020 · 43 posts · 26 votes
5y
@Hansel Akers. Thanks hansel, it seems to be a great way to get my first home. I am certain at this point i will be doing it, regarding everyones input
Rental Property Investor · San Diego, CA · Member since 2020 · 43 posts · 26 votes
5y
@Brian Garlington yea well i plan on pulling it from an account that was started by my previous employer (which matched 6%) but i am no longer with them nor contributing to the account, since i have 2 others with my current. I see youre in oakland! Thanks for the help!
Rental Property Investor · NJ CT, Long Distance · Member since 2021 · 37 posts · 20 votes
5y
@Michael Loza
As most have mentioned this is a great strategy, I've done it multiple times myself. One thing to be mindful of is that your lender may be looking at your income to loan, and by taking out a 401k loan they may need to re run their calculations.
Also, and it sounds like this is similar to the cash problem you have where they won't let you use additional funds, the mortgage company wants to know where the money is coming from. So in the future its best to take the 401k loan out two months in advance so it sits in your savings account and looks like cash, not a loan. Just FYI.
Property Manager · Saint Petersburg, FL · Member since 2016 · 182 posts · 51 votes
5y
friend had a terrible experience when she borrowed from 401K and then the business sold. She was required to pay the entire sum immediately and could not so was charged the early withdrawl penatly. It was a "big" business ... no one saw that train coming. Too bad for her; just a word of caution to any who consider this plan.