Has anyone ever used 401k money to purchase PMs?

@NorthKorea

What about borrowing from your 401K for a down payment on a first house?

 

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You don't necessarily need to. Unless the law has changed, you're allowed to withdraw $10k from your 401k without penalty (taxes still owed) to use toward the purchase of a first home. If you actually need to borrow from your 401k for your first home, you might want to look into how much PMI will cost you for having a lower down payment. If you do the calculation, it may turn out that for the same dollar outlay in the first three years (mortgage + 401k loan repayment versus mortgage + PMI + over payment equal to differential) you end up better off on the mortgage itself. Talk to your tax advisor and financial advisor about potential tax consequences and benefits of each strategy.

I'm no longer a financial advisor, and nothing in this post (or any of my other posts) should be construed to be financial advice. I'm merely creating a scenario to better explain some of the potential consequences of financial options.

 

Don't do it. Get out of debt first, then save enough for a 20% down payment.

Never touch your 401(k) until you retire!!! You can suspend contributions while you are saving that 20% down payment, though.

Truth be told, I cashed out my 401(k) and used the ~$12k I had in it, for my down payment, which was only 10%. That 401(k) was from a previous employer, and I built that up in my new employers account in the following 3 years. Do I regret doing that? No.

That was 18 years ago, though. And, I made sure that I didn't buy more house than I could afford working at McDonalds, should I lose my job and it came to that. Of course, that was a 30 year mortgage with lower monthly payments, which I definitely do not recommend. Get a 15 year, which I subsequently refi'd into.

 

if you have to take take 10 grand out of your 401k to buy a house, you cannot afford the house

 

Agreed. Wait until you have the downpayment.

Make sure your home purchase is a blessing, not a curse.

 

20% down is hard to do in many areas where the average house is well over 500k.

 

It totally depends upon the situation, your ability to pay back the funds as you'll have an additional debt to drain on your revenue stream (your paycheck). Check if your 401K loan have to be repaid within a certain term, such as 5 years.

I took a 401k loan out to buy a house to make sure I had all the cash needed to get the 25%ish the bank wanted. Of course, you had to divulge where you were getting all the downpayment $$ to them beforehand which the 401k loan was only 1/3 of it.

FYI, I paid it all back in under 3 years.
During that timeframe though I believe my 401k investments were frozen and I couldn't change them.

If you lose your job, the 401k will want it to be paid back in full immediately (90 days or something) otherwise it becomes a cash retirement distribution. Or if you don't pay it back within the timeframe, same problem.

But research this .. i'm just going by memory.
I looked at the rising housing market, and the cost of rent. It was cheaper to buy, than rent so I did the aggressive capitalization to buy.

By owning vs renting, I reduced my monthly housing expenditures by nearly $600 which includes property taxes and insurance. FYI, I bought the house I was renting. YMMV

 

You need to think long and hard about taking the 10k out of your 401k. You are basically getting a loan for the down payment on another loan. Doesn't sound like a solid plan, IMHO.

 

Many of the larger bars are 401K friendly, i know this because it say so LOL

 

That's not necessarily true. If you have an opportunity to buy a house at below market (or in a down market), have good free cash flow, and have most of the down payment already saved, using the $10k waiver is viable.

 

Yes! It worked out perfectly for me.

The money I saved from owning versus renting was enough to pay off the 401k loan in and by itself!!

Now I have about 60% equity in the house as the market has risen; and I make payments above the minimum amount. I have a 30 year loan but on a 16 year payoff trajectory.

But I don't recommend taking 401k money out for buying PMs.
PMs, to me are just a storage of wealth. Even though you pay yourself back interest on that loan it just doesn't make sense other than a "mental" thing in relation to gold/silver.