A Home Inspector’s Weblog by Frank Schulte-Ladbeck

exploring homes and the lives in them around Houston

Can I use my retirement fund to buy a home?

As banks are becoming tighter with their finances, home buyers are becoming creative in trying to find ways to locate the funding to purchase a home. I saw that someone used a search term indicating using their 403b to buy a home, and then I was asked this very question in a conversation, so I decided to post my thoughts on the matter.

Yes, you can take money out of your IRA, 403b, or 401k, but you will pay a hefty tax if you do (the capital gains tax). No one should ever (and I repeat ever ) take money out of their retirement account, unless it is same last resort situation. Buying a home should not be such a situation. In addition, you will be surprised by what you may need in the future for living expenses, so save the funds now for that eventuality. You can borrow money against these accounts. Each financial institution has its own policies about this type of loan, and there are advantages and disadvantages to doing this. You are basically borrowing money from yourself, but you have to pay fees to the provider for the account for managing this loan. Generally you are paying yourself interest for borrowing the money, but this interest is not as much as you may earn if you had left the money in the account in the first place.

Another concern in today’s market is that lenders do not want you to borrow money for the down payment. They are bound to give you a better rate, if you save the funds to do this on your own. There are instances of the banks turning down applications that would have been accepted last year (and we are not talking about subprime borrowers here). Before rushing into homeownership, take the time to learn about what will get you the best deal from the bank, and you may find that it is not that hard to have everything in place to get that loan.

Owning a home is the American dream, but hopefully going into debt is not the corollary to that fact.

Your Houston home inspector,

Frank Schulte-Ladbeck

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