Many first-time home buyers use their retirement funds to purchase a home or provide a large down payment. Extra funding up front will allow monthly mortgage payments to be lower and may give you more purchasing power. But, how do you go about withdrawing your funds, and is it worth it? If you are set on using your retirement funds to buy your first home, here are some things you should consider:
Before you do anything with your retirement funds, you should know you can probably get a mortgage loan without tapping your finances. It is best to speak to a loan officer about your options with and without the retirement resources. Secondly, if you are not a first-time home buyer, there are restrictions and fees on pulling out of your retirement. It all depends on your unique position.
Pros of using retirement funds to purchase a home:
- You can buy a home quickly. If you are looking to buy a house to get out of leasing or need to find a home fast, extra funds will give you buying power. It will also allow you to present a hefty down payment without saving for months or years.
- Using retirement funds to purchase a home is relatively easy. Especially if you are a first-time home buyer, it will be relatively easy and quick to pull funds from your savings.
- You can get a lower payment and interest rate. The higher the down payment, the lower the interest and payment per month. You can also take out a loan against your retirement fund. This would mean you are paying yourself back over time.
- If you do not plan on retiring anytime soon, chances are you can build the retirement funding back up over time.
Cons of using retirement funds to purchase a home:
- Your retirement fund will take a significant hit. Usually, when a person chooses to pull from retirement funds for a home, they will pull a minimum of $10,000. So, keep in mind how long that will take to build that amount back up.
- We strongly do not recommend using your retirement funds if you plan on, or expect to, retire any time soon. You will not have enough time to gain those critical funds back.
- It is not always the best investment. Consider the compounding interest you receive in retirement funds before making any moves.
- You may have to pay taxes on your funds. Depending on the way you withdraw and the type of retirement fund you have, you may get slapped with a significant tax bill from pulling your funds.
Whether or not using your retirement funds to purchase a home is right for you is entirely dependent on your situation. The best thing to do is to speak with a loan officer about your options. Then once you know where you stand, speak with whomever controls your retirement fund about your options. Once you have all of the insight you need, you can make a very educated decision. It would also be good to speak with anyone you may know who has used their retirement funds to buy a home. If you have any questions about purchasing a home with a retirement fund, please also feel free to contact us here at RITA.