The Reasons You Shouldn’t Use Your Retirement Money to Buy a House

Resist the urge to pull from your 401(k) to ensure that you’re truly financially prepared.The Reasons You Shouldn’t Use Your Retirement Money to Buy a House

Saving up for a down payment is difficult, and it can be fairly easy to get caught up in the excitement of house hunting. You may be tempted to break into your 401(k) to fund some of this down payment, because, after all, it is your money. Right? Well, not quite. It is yours, just not yet. Borrowing from your 401(k) probably means that you can’t afford this home, and if you can’t afford it then your investment may not pay-off in the end. Here are two reasons why you should not borrow money from your 401(k) to help make a down payment on your potential future home.

A 401(k) loan may ruin your future wealth

The typical loan allows you to borrow up to 50 percent of your balance, and then only take out $50,000 or less. You have to pay back yourself for taking out that loan, which means that all of that money could have been used to add into your 401(k), is now being put back to make up for your earlier expense.

Being penalized for early distributions

There are only a few circumstances in which the IRS considers giving you the OK, but buying a home is not one of them. There is a 10 percent penalty for early reimbursement because the amount is now considered taxable income, so when you pay yourself back—the tax would have doubled and your wallet takes a major hit.

You already have enough to worry about, purchasing a home should not put you in financial purgatory. Contact Avis Lending when it comes time to find the perfect home that’s within your budget and lifestyle. We are more than happy to help you.

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