How To Use Your 401k To Buy A House in the Northwest Valley, Arizona
You finally found a home you’re interested in. Only thing is, you need to find a way to come up with a down payment. If you have been gainfully employed for some time, you may have options – and those options are in your 401k. Depending on your specific situation and what may work better, you can withdraw from or borrow from your 401k. Let’s look at how to use your 401k to buy a house in the Northwest Valley.
Withdrawing From Your 401k
Many people don’t know that you use your 401k to buy a house in Northwest Valley. When you withdraw money from your 401k there isn’t a specific penalty exemption for home purchases, so any money will be classified as “a hardship exemption.” This means you’ll have to pay a 10% penalty on the amount withdrawn. You will also have to pay income tax on it.
A good strategy, in this case, may be to roll the amount you wish to withdraw over to an IRA to avoid paying the penalty. In order to do this, it would have to be an old 401k with a former employer. You can’t roll over a 401k with an employer you are currently working for.
If you aren’t able to do the roll-over, your mortgage-interest tax deduction may offset the “income” you have to report with a 401k withdrawal. The mortgage-interest deduction can effectively cancel out the tax owed on the withdrawal. You will, however, still have to pay the 10% penalty.
Borrowing From Your 401k
better option to use your 401k to buy a house in Northwest Valley. You can borrow up to $50,000 or half the value of your account, whichever is less. Make sure you can comfortable handle the payments, if you can, borrowing is usually a less-costly option than a straight-up withdrawal. Although you’ll still pay interest, you won’t have to pay a penalty or any taxes.
There are, however, a few things you need to be aware of:
- Even though it’s your money in the 401k, this is indeed a loan with monthly payments. So borrowing from your 401k may affect your ability to get a mortgage.
- A 401k loan generally carries an interest rate roughly two points above the prime rate – although that interest does go back into your 401k account.
- Generally, these loan arrangements are only for five years. So if you borrow a large amount, the monthly payments could be pretty hefty.
- And if you leave the company, you may have to back the outstanding balance within a 60-90-day period or take that balance as a hardship withdrawal.
If a down payment is keeping from owning your own home, it’s possible to use your 401k to buy a house in the Northwest Valley. You just need to figure out which option – withdrawing or borrowing – is best for you and be aware of the consequences in each case. This is also a situation where a real estate professional can be a valuable resource. And we are prepared and eager to help.
CALL US AT (602) 529-3380 OR SEND US A MESSAGE FOR MORE DETAILS ON HOW TO USE YOUR 401K TO BUY A HOUSE IN Northwest Valley!
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