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Old 04-22-2016, 12:43 PM
 
9,839 posts, read 3,794,702 times
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Hi folks..


I am considering purchasing a home, but don't want to sell my current home until I have purchased one.

Has anyone used their 401k as a bridge loan... To fill that void between purchase and sale?


We would like to be able to make an "all cash" offer. If I get a loan on my current home there would be a bunch of costs, but if I just "borrow" my 401k for about a month it would mean I could skip that and take a loan on the new house either after we close....

Has anyone used their 401k to fund a short term need such as this and if so are there pitfalls we need to watch out for.

clearly missing the deadline to return the monies to the 401k would be something to avoid ...but are there some esoteric details that an unsophisticated punter like myself be unaware of?
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Old 04-22-2016, 01:15 PM
 
2,475 posts, read 1,286,836 times
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Most homes close in 45 days average, that may be too much time to risk not being able to return it unless the sale and purchase are roughly the same time period so that you can coordinate the closings to be within the 60 days time period. Find out how quickly you can get the money from your 401K.

If on the other hand you want to purchase a house before you actually put your current house on the market the closings might be well beyond the 60 days. This is my story. Being that the my husband was losing sleep over the bank getting back to us for sure whether the equity loan would be in place in time for our closing (it was) I decided to "borrow" from my 401k with the intention of paying it back within 60 days. The timing of the equity loan, then, did not matter any longer. Note that there is usually about a $400 early repayment penalty but this beats 30% taxes on taking a 401k amount early. Bank fees may vary on this so ask about early penalty.

On the other hand you could take out an equity loan on your new place immediately after passing (takes up to 25 days) then if you haven't sold your current home and close in time to pay back the 401K borrow that amount. Ask about penalties etc. but I think as long as you keep the equity loan open (not necessarily borrow from) for a set time there are no penalties. Key to this is finding out how soon you can have the 401k money and timing it not to worry about closing. If it takes a week to have it wired to your bank account then shoot for the request two weeks in advance of close.
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Old 04-22-2016, 01:27 PM
 
28,461 posts, read 76,043,485 times
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The generally accurate "Mortgage Professor" lays out the risks and other options -- Buying a New House Before Selling the Old One - Mortgage Professor

If things are "secure" with your employment and you have high degree of confidence that your existing home will sell at a price that gives you enough to pay back the 401K in a timely manner it could be an option. The other downside is that too many people end up "needing" to use some of the magically borrowed money to fix up the new house and carrying a 401K loan for any length of time is generally a rotten idea -- 8 Reasons To Never Borrow From Your 401(k) | Investopedia
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Old 04-22-2016, 01:30 PM
 
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i would never chance it
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Old 04-22-2016, 02:00 PM
 
9,839 posts, read 3,794,702 times
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Thank you.

North, I had not considered the tightness of timing, that is something I shall review.

Chet, that link is great, I would never have clicked on it from a google search I would have assumed it was a come-on looking to sell me something.

Mathjak107, I love your advice and insights you provide on retirement, excellent stuff. I am not worried about having the monies to repay it, more concerned about missing something that results in me getting hit with a tax bill.

To be clear I would not consider doing this if we were sailing close to the wind. We currently have zero debt, cc or otherwise. We fully own our current home and will be keeping at least 1 year to 2 years full living expenses nice and handy should the need arise.

We are really just trying to figure a cheap way to be able to make an all cash offer on a home.

It sounds like it is worth chasing down our 401k people to find out exactly what the terms and costs might be compared to a more traditional loan.
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Old 04-22-2016, 04:03 PM
 
146 posts, read 232,161 times
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I used a 401k loan last year to pay for repairs that had to be done before closing (new septic system). I had the check in about a week. I think the shortest loan term was one year, but it could be payed back at anytime in one lump sum. I paid it back in less than one month, before the first payment was due. My understanding is that each employer can set there own guidelines regarding 401k loans, so you should check with your plan administrator.
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Old 04-22-2016, 04:20 PM
 
85,308 posts, read 82,845,500 times
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Quote:
Originally Posted by evilcart View Post
Thank you.

North, I had not considered the tightness of timing, that is something I shall review.

Chet, that link is great, I would never have clicked on it from a google search I would have assumed it was a come-on looking to sell me something.

Mathjak107, I love your advice and insights you provide on retirement, excellent stuff. I am not worried about having the monies to repay it, more concerned about missing something that results in me getting hit with a tax bill.

To be clear I would not consider doing this if we were sailing close to the wind. We currently have zero debt, cc or otherwise. We fully own our current home and will be keeping at least 1 year to 2 years full living expenses nice and handy should the need arise.

We are really just trying to figure a cheap way to be able to make an all cash offer on a home.

It sounds like it is worth chasing down our 401k people to find out exactly what the terms and costs might be compared to a more traditional loan.
thank you
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Old 04-22-2016, 05:08 PM
 
Location: California side of the Sierras
10,127 posts, read 5,980,215 times
Reputation: 11612
If you are talking about a 401k loan, then the 60 day rule is not an issue. It applies to withdrawals, not loans.

If you are talking about a 401k withdrawal, that is likely not allowed if you are a current employee. Check with your plan.
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Old 04-22-2016, 05:51 PM
 
Location: Boston
74 posts, read 110,698 times
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I've used this 401K gift twice.
You are only allowed to do this once per year and you must have the money back within the 60 days.
It's definitely doable but make sure you have a plan B.
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Old 04-22-2016, 06:12 PM
 
Location: NC
7,699 posts, read 9,928,601 times
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At my old company during the time you had the loan you were suspended from adding to the 401K or getting a company match. But that may not be a problem for you, or you may not care.
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