Is it a Good Idea using Retirement funds to buy a home? : 3CALOAN
If you maintaining your retirement account since you are adult, then maybe you don’t have enough amount to put down on a home. However, you can use your retirement funds to buy the home which you want to buy but it’s your choice to use it or not. There are many taxes and penalties which you have to consider while purchasing a home. You can make the right decision by considering following things.
Benefits of Using Retirement funds to buy a home
- Pay yourself interest –If you opt any loan then you do have to pay an interest rate. But if you use your retirement funds then the interest rate which you pay is the money back to your own account. From this, you don’t have to give any interest rate to the bank and you are not giving any profit to them.
- Avoid PMI – By putting 20% down payment of the home price with your retirement funds then you don’t have to pay PMI. By taking PMI it makes harder to afford because it usually adds quite a bit to a housing payment. PMI is the money which you’ll never get back. You can avoid it by putting 20% down payment of the home price. From this, you can save thousands of your dollars.
Disadvantages of Using Retirement funds to buy a home
- Job Risk– Almost all of the loans are due within 5 years. If you left your job for some reason then, the loan may become due and payable immediately.
- Potential of your investment- By using retirement funds to buy a home you will lose the earning power of your money. The money in your account is not just the money which you kept in your account but it is a compound interest that you earn by keeping the money in your account. Even if you will borrow for a short time period it can also diminish your savings.
Alternatives to Using Retirement funds to buy a home
- Reduce contributions to a retirement account – You can eliminate or reduce your contributions before you’ll buy a home. You will have a better situation if you will save for a down payment and contribute.
- Obtain money from a relative – You can use gift funds in some loans programs like FHA and conventional loans. You can ask your loan officer if there is any program that suits your situation perfectly.
- Lower down payment – There are many programs which require a minimum of 3.5% down payment of the home price. So you opt for any program if you can’t arrange a large down payment. There are also a few programs which also require no money down like USDA and VA loans.
It is your personal decision that whether you can you use Retirement funds to buy a home or not and you should explore all of your options. You should talk with your tax and loan officer in every situation even if you want to use your funds. If you do everything right, you can gain the benefits of using your retirement funds and saving money on your loan in the long run. 3CALoan can help you find your answers fitting your personal and housing needs. We help our customers every step of the way. We prioritize informing and educating our clients about the home buying process. Our client’s happiness and confidence upon closing a deal reflect our excellent quality services. To find out more information about manufactured home loans and how w can help, contact us at (818) 322-5626.