How to Buy a Home with your Retirement Fund in Chippewa Valley

Jun 16, 2020

If you want to stop renting and buy your home in Eau Claire Area, you may be overwhelmed after going to the bank to find out how much you must have for a down payment. You may be diligent in paying your bills, have a good dependable job and have good credit but just don’t have the down payment to place on the home you want. You may feel like the only option you have is to rent your home. 

You may be able to use your retirement funds to buy a home.

You can withdrawal money from a 401k, IRA, or Roth IRA for purchasing a home. If you choose to use IRA or Roth IRA  accounts for your first-time home buying down payment, you will not be required to pay the penalty associated with early withdraw. 

These can be great options. If you want to take advantage of these options, please check with your tax professional.  

Using IRA Account to Buy a Home

Most people are aware of the early penalty charges that are charged to those who want to draw from their traditional IRA account prior to the age of 59.5. The IRS does have exceptions to this rule that will allow you the option to withdraw a certain amount of money over your lifetime and you won’t be penalized for doing so. You can only avoid penalties if you use the money for your first-time home buying purchase. 

You can withdraw maximum of $10,000. In our communities, new manufactured homes sell around 49k to 65k. It could cover most, if not all of the down payment. 

Using a Roth IRA to Buy a Home

If you have an active Roth IRA for at least five years steady, you can use the $10,000 lifetime limit withdrawal for first-time home purchase. This withdrawal will be considered as a qualified distribution, which simply means that you won’t be penalized, and you won’t have to count it as income on taxes. 

How to Use Your 401K to Buy a Home

There are two ways to use 401k account to purchase a home. The first is to do an early withdrawl. The second option is to borrower from your 401k.

401k Early Withdrawl to Buy a Home

IRS allows early withdrawl from 401k account for home purchase cost including down payments. There are some factors to consider. You will owe income tax on the withdrawl. If you are younger than 59.5, you will also owe 10% penalty on the money you withdraw. 

Borrow from 401(k)

Another way is to borrow from 401k. You can borrow up to 50k, or half of the value of the account, whichever is less, as long as you are using the money for a purchase. You will be paying interest to your 401k, not your bank. Note that most of lenders don’t allow borrowed funds to be used for down payment. Thus, if you are borrowing from 401k, you will need to borrow full amount of the home price. Again, our new manufactured homes cost from 49k to 65k. 

Should I Tap into Retirement Fund If I Already Have Down Payment?

If you have the down payment to put on your new home purchase, you may still want to consider withdrawing from your retirement account and adding it to your down payment because it can help lower your monthly mortgage payment and your total borrowed. When you have a higher down payment, you can qualify for better mortgage loan terms. 

Buying a home is a wonderful feeling. You get a place in this world all to yourself. Now, it's time to find that perfect home. Come by and visit our homes we have for sale. Call and set up an appointment to go over all your options and see all the choices you have. We’re here to help make your dreams come true.