borrowing from 401k for mortgage down payment
Borrowing From a 401(k) The second way is to borrow from the 401(k). You can borrow up to $50,000 or half the value of the account, whichever is less, as long as you are using the money for a home purchase. The interest rate for this loan is typically two points over the prime rate.
Mike Mudry from USA Mortgage and damian gerard chat about down payments and the pros and cons of borrowing from your 401k.
How a 401 (k) loan works. With a 401 (k) loan, you can borrow up to half of your account balance or $50,000, whichever value is smaller. So if you had a balance of $70,000 you could borrow up to $35,000; with a balance of $170,000, you could borrow up to $50,000.
Borrowing from your retirement plan to fund a down payment isn’t a terrible strategy, especially if you want to lock in today’s superlow mortgage rates (the recent average for a 30-year fixed.
Mark and Katie need to weigh their options as far as the new monthly payment of the home mortgage plus the repayment to their 401(k). It may be more affordable to put up less of a down payment and consider mortgage insurance (or lender-paid mortgage insurance), but that is a whole other discussion.
Consider that a $5,000 401k loan will have a payment of $93 per month (at a 6% interest rate) over five years, while a $25,000 loan will have a payment of $483 per month. The latter payment could seriously hinder your ability to pay the mortgage every month, and the bank will take this into consideration when figuring what you qualify for.
While it's never a good idea to borrow from your company-sponsored 401(k), using it to pay down a mortgage is as good a reason as it gets. While your 401(k) .
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One upside of deciding to borrow from a 401(k) for a house-whether you take a loan or make a withdrawal-is that it may allow you to avoid paying private mortgage insurance if you offer the lender a large enough down payment. Private mortgage insurance is insurance that protects the lender and it’s required if you’re putting less than 20.
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