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Old 05-31-2011, 09:44 PM
 
2 posts, read 10,950 times
Reputation: 10

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Hello!
I'm really confused on what is the best choice for me!
I want to purchase a home for 150k. I have 100k cash and I'm not sure whether its better to borrow 50k from my 401k or or borrow the money via a regular 15 or 30 year fixed mortgage!
here are some of my thoughts:

regarding the 401k option--I like that the interest is 3.5% and that after 5 years I would have it all paid off! (they deduct $250 out of my paychecks). I realize the downside about this is the scary risk that if I get layed off I will have to pay the amount back in full...however, if that were to happen I'm sure that I might have saved it up by then or could borrow from family, but more than anything I don't think that is likely to happen. another downside is the fact that I will possibly loose some of the tax earnings gained on the 401k and interest.

regarding a conventional mortgage--
I like that I can write off the interest paid. I dont like that I only see long term loans and I'd really like to pay this loan off sooner than later. I also don't like how much more I would pay in interest at 5% over 15 -30 years . also, although I qualify for upto a 400k loan, I dont like the fact that my lender now seems to have no interest in returning my call when it comes to inquiring about getting a qualification on such a small loan.

I GUESS THAT MY MAIN QUETIONS ARE:
-can I write off the interest paid on my loan taken out agains my 401k loan since its used toward the purchase of a home?
-does anyone know of a lender that wouldn't scoff my 50k mortgage loan request?
-any other information regarding the information above?

thanks so very much,
Brandy
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Old 05-31-2011, 09:45 PM
 
Location: Texas
44,256 posts, read 57,302,327 times
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I know a lot of people who would slap you with a wet weasel for even suggesting that you touch your 401k.
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Old 05-31-2011, 09:52 PM
 
2,060 posts, read 5,336,945 times
Reputation: 1664
You need to balance the tax benefits of deducting mortgage interest over any interest your savings are making you before sinking all your cash into a house.

Also bear in mind that you can pay a mortgage off as quick as you want, they don't object to extra payments.

And no don't touch your 401k.
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Old 06-01-2011, 05:00 AM
 
Location: MID ATLANTIC
8,239 posts, read 20,558,988 times
Reputation: 9542
I agree, the 401K should only be touched for a down payment, not to finance an entire home.

Without knowing more, it's hard to provide proper advice.

I'm also going to make the unpopular suggestion here......and suggest you reconsider putting so much down into the home. It sounds like you are putting your life savings into the home if you are considering your 401 for the balance of funds. As many people have learned in the past 4 or 5 years, just because you put the cash into the home, doesn't mean you will be able to get it back out. And if you are fortunate to find someone to do a HELOC or 2nd trust cash out, it would be far more than the 3.75% (or possibly less) interest rate you would pay on a 15 year mortgage right now. As a prior poster said, you can always prepay your mortgage, when you are ready for mortgage-free living.

Questions that come to mind and ones you should ask yourself (not for us) to make your decision:

How long do you plan to be in the home? Is it a home you would consider keeping for rental income sometime in the future? If so, what is the current fair market rent?

What would you do if you had a catestrophic need for 10K? 20K? More?

What if you got laid off? How long could you survive? Could you get cash without touching your 401?

You are fortunate, indeed. Many American's have seen their 401's and savings wiped out from this market.....many of them sinking money into their homes. I'm sure if you asked many, there are regrets. That's not to say one size fits all, far from it. But daily I talk to people that put 40% down, only to find themselves unable to tap into that equity that was once there.
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Old 06-01-2011, 05:23 AM
 
Location: MID ATLANTIC
8,239 posts, read 20,558,988 times
Reputation: 9542
I forgot to add, your loan will process itself, meaning a whole lot of involvement from a loan officer would not be required, probably your longest conversation is whether to lock or not. You won't find everyone racing to give you their lowest quote, only because that environment does not exist any longer, not necessarily due to loan size. There's also the fact if you are discussing if you should get a 50K mortgage or blow off the mortgage by taking out a 401k loan, your reception is not going to be favorable. That's like walking into a bar and asking for the nearest AA meeting.

Not knowing where you are located, any local, regional bank can help you, as can the big box banks. Or, I suspect your best match is going to be a local credit union. The employees at credit unions are typically not on commission and are customer service oriented.
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Old 06-04-2011, 03:06 PM
 
2 posts, read 10,950 times
Reputation: 10
Default Thank you all

You have been a tremendous help, so I think I will leave the 401k alone.
:-)
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Old 06-04-2011, 04:55 PM
 
Location: My little patch of Earth
6,193 posts, read 4,902,983 times
Reputation: 3048
Quote:
Originally Posted by SmartMoney View Post
I agree, the 401K should only be touched for a down payment, not to finance an entire home.

Without knowing more, it's hard to provide proper advice.

I'm also going to make the unpopular suggestion here......and suggest you reconsider putting so much down into the home. It sounds like you are putting your life savings into the home if you are considering your 401 for the balance of funds. As many people have learned in the past 4 or 5 years, just because you put the cash into the home, doesn't mean you will be able to get it back out. And if you are fortunate to find someone to do a HELOC or 2nd trust cash out, it would be far more than the 3.75% (or possibly less) interest rate you would pay on a 15 year mortgage right now. As a prior poster said, you can always prepay your mortgage, when you are ready for mortgage-free living.

Questions that come to mind and ones you should ask yourself (not for us) to make your decision:

How long do you plan to be in the home? Is it a home you would consider keeping for rental income sometime in the future? If so, what is the current fair market rent?

What would you do if you had a catestrophic need for 10K? 20K? More?

What if you got laid off? How long could you survive? Could you get cash without touching your 401?

You are fortunate, indeed. Many American's have seen their 401's and savings wiped out from this market.....many of them sinking money into their homes. I'm sure if you asked many, there are regrets. That's not to say one size fits all, far from it. But daily I talk to people that put 40% down, only to find themselves unable to tap into that equity that was once there.
Excellent advice. I'm reconsidering my thoughts now as well.
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