Using Roth IRA to purchase duplex

[Sherrie Tullsen-Chin]

Hi everyone!

I have a goal to purchase a duplex or triplex in Cape Coral Florida in 18-24 months to house hack. At my current savings rate I won't have enough liquid funds for the 5% down payment for a conventional loan (this is a new loan product...the down payment used to be 15% for a duplex and 25% for 3 or 4 units) plus the closing costs and required reserves. I am thinking about whether to use some funds from my Roth IRA to help with the down payment and closing costs. I will be considered a first time homebuyer, and my understanding is I'm allowed withdraw from my IRA for a property purchase given I'm considered a first time buyer and as long as I pull out original contributions and not earnings.

What I'm not sure about is whether the property can be a 2-4 unit multifamily property or if this only applies to SFRs. Does anyone here know? Thanks!

[Chris Seveney]

Quote from @Sherrie Tullsen-Chin:

Hi everyone!

I have a goal to purchase a duplex or triplex in Cape Coral Florida in 18-24 months to house hack. At my current savings rate I won't have enough liquid funds for the 5% down payment for a conventional loan (this is a new loan product...the down payment used to be 15% for a duplex and 25% for 3 or 4 units) plus the closing costs and required reserves. I am thinking about whether to use some funds from my Roth IRA to help with the down payment and closing costs. I will be considered a first time homebuyer, and my understanding is I'm allowed withdraw from my IRA for a property purchase given I'm considered a first time buyer and as long as I pull out original contributions and not earnings.

What I'm not sure about is whether the property can be a 2-4 unit multifamily property or if this only applies to SFRs. Does anyone here know? Thanks!

 I believe the limit though is like $10k correct?

[Sherrie Tullsen-Chin]

Quote from @Chris Seveney:

Quote from @Sherrie Tullsen-Chin:

Hi everyone!

I have a goal to purchase a duplex or triplex in Cape Coral Florida in 18-24 months to house hack. At my current savings rate I won't have enough liquid funds for the 5% down payment for a conventional loan (this is a new loan product...the down payment used to be 15% for a duplex and 25% for 3 or 4 units) plus the closing costs and required reserves. I am thinking about whether to use some funds from my Roth IRA to help with the down payment and closing costs. I will be considered a first time homebuyer, and my understanding is I'm allowed withdraw from my IRA for a property purchase given I'm considered a first time buyer and as long as I pull out original contributions and not earnings.

What I'm not sure about is whether the property can be a 2-4 unit multifamily property or if this only applies to SFRs. Does anyone here know? Thanks!

 I believe the limit though is like $10k correct?

 I'm not sure! I've asked my tax guy to see if he knows.

[Chris Seveney]

Quote from @Sherrie Tullsen-Chin:

Quote from @Chris Seveney:

Quote from @Sherrie Tullsen-Chin:

Hi everyone!

I have a goal to purchase a duplex or triplex in Cape Coral Florida in 18-24 months to house hack. At my current savings rate I won't have enough liquid funds for the 5% down payment for a conventional loan (this is a new loan product...the down payment used to be 15% for a duplex and 25% for 3 or 4 units) plus the closing costs and required reserves. I am thinking about whether to use some funds from my Roth IRA to help with the down payment and closing costs. I will be considered a first time homebuyer, and my understanding is I'm allowed withdraw from my IRA for a property purchase given I'm considered a first time buyer and as long as I pull out original contributions and not earnings.

What I'm not sure about is whether the property can be a 2-4 unit multifamily property or if this only applies to SFRs. Does anyone here know? Thanks!

 I believe the limit though is like $10k correct?

 I'm not sure! I've asked my tax guy to see if he knows.

 Ask your custodian as well

[Ryan Thomson]

@Sherrie Tullsen-Chin 

You don't need to save that much to buy a house hack.

I would look around your area/google/ask other investors if there is a down payment assistance plan that could cover your down payment. In Colorado Springs, I often refer clients to my lenders that can do down payment assistance loans. These are basically interest free loans that will cover almost all of your 3.5-5% down payment for a primary residence.

As far as closing costs go, we normally negotiate that upfront with our offer. There are a couple easy ways to get the closing costs covered.

I would connect with a house hacking focused realtor in your area. They should know all of this.

[Bill B.]

If it’s a Roth you can also withdraw all contributions tax free. (Since they’ve already been taxed.)

[Tisha Chafer]

Have you looked into doing a self-directed IRA to purchase the property? I have used The Entrust Group to set mine up and this is how started purchasing our properties. However, there are a lot of rules and regulations regarding SDIRA's and one is you cannot use the property yourself to live in, so not sure if this will work for you but may be worth looking into for future purchases.

[Sherrie Tullsen-Chin]

@Chris Seveney You were right I checked with my tax guy and you are allowed to remove 10% of earnings in a Roth IRA for a first time home purchase. You are allowed to withdraw all the basis at any time tax free. Thanks!

[Sherrie Tullsen-Chin]

@Tisha Chafer I already have a SD IRA. Great advice but yes you can only purchase property is you don't live in it.