Posted by Anthony Susi on 1/28/2019

Your 401K is a great resource of investing for retirement. Many people use their 401kís as a part of their overall investment strategies, pulling money out of it when itís needed. When youíre ready to buy a house, you may think that pulling money out of your 401k for a down payment is a good idea. But think again. 


Although you should always speak with a financial professional about your money matters, the bottom line is that is probably not the best idea to use your 401k to supply money for a downpayment on a home. 


First, your 401k funds are pre-tax dollars. That means that you havenít paid any taxes on these funds. Your employer will often match the amount of money that you put into your 401k, as an incentive to help you save money for your future. You need to keep your 401k for a certain amount of time before any funds in the 401k become available to you without having to pay any kind of penalty. If you decide to take on the penalty, you can often face a cut to your employerís match programs as well. This is why you must make this decision wisely. 


The Penalties


Anyone under the age of 59.5 pays a penalty of 10 percent to take the money out of the fund. In addition, youíll now need to pay taxes on this money, because it becomes a part of your adjusted gross income. 


Alternative Actions


If you are looking to invest in a property, there may be other options for you rather than pulling money out of your 401k. While some plans allow you to borrow money from it. However, if your only option to get money to invest in a property is to pull money from your retirement account, it may not be the best time to invest in property for you. 


Keep It Separate


If youíre younger (say in your 30ís or 40ís) your best option is to have a completely separate account that is used to save for a downpayment and other expenses that youíll incur when you buy a home. In this sense you arenít spreading yourself too thin as far as investments go. You should compartmentalize your money. Buying a home is a large investment in itself. Home equity can also be a good source of a nest egg in later years when you need it. However, even if a property will be an income property, itís never smart to take from one investment account to provide for another unless youíre shifting your focus. You donít want to reach retirement, only to see that your funds have been depleted and you canít retire as expected.




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Posted by Anthony Susi on 11/27/2017

If you are thinking of buying your first home, youíre thinking of making the single biggest purchase of your entire lifetime. Real estate is complex. From getting finances in order to understanding the entire process to securing the home you love, thereís so much that youíll need to know when it comes to buying your first home. 


What Is A Down Payment?


A down payment is a one-time cash payment that youíll provide at the closing table when you buy a home. How much your down payment is will have an effect on how much your monthly mortgage payment will be. It will also affect your initial home equity value. 


Should You Keep Renting?


First, youíll need to think of a savings goal and a timeline. The general rule is that if you own a home for at least 5 years, you have gotten your ďmoneyís worthĒ out of the closing costs and the fees you paid at the time you purchased your home. If you donít think youíll stay in a home for at least 5 years before making another move, you may want to consider renting until you know where you want to settle. 


What Can You Afford? 


Youíll need to calculate just how much home you can afford. Look at potential monthly mortgage payments plus taxes, fees, insurance, utilities and other monthly expenses that you have.


In dual-income households, itís nice if the living expenses can be covered just by one personís paycheck. Once you have an idea of your budget, you can price out homes that will meet your needs and be in your price range. 


Why You Should Save More


The best practice in buying a home is to put 20% down on the house. With this sizable down payment, it will be easier to get approved for a mortgage. Youíll also avoid needing PMI (private mortgage insurance.) This is an additional cost for people who put down less than a 20% down payment. This can cost you a lot of money each month, so itís best to save as much as you can for that initial down payment. 


Donít be discouraged. You can still buy a home with a lower percentage of a down payment, but youíll have to pay for the PMI and include the additional expense in your budget. The Federal Housing Administration has many different options available that allow you to put a smaller down payment on a home, so do your homework.  


How To Save 

           

Once you get an idea of about how much youíll spend on your home, you need to take action and start saving. There are many ways that you can save automatically without even thinking about it. You can choose a fixed amount or percentage of your paycheck and save it automatically into the house fund. Save as much as you can so youíll be able to make your home purchase more quickly. You may even want to consider putting your money into a money market account for a higher return on your savings once you reach a certain goal. 


Donít Forget To Save Your Bonuses


Whether you have received a gift or a sizable Christmas bonus, make sure that you put that money away towards your home purchase. Every little bit helps. While we may have an inclination to want to spend the money on more immediate things, youíll be happy that you saved your money when you head to purchase your house! 


Use Your IRA


The IRS allows a tax benefit for first time home buyers. You can take out up to $10,000 out of your IRA or Roth IRA for a first time home purchase. Your Roth IRA account must be at least 5 years old in order for you to do this. Distributions from this account are tax-free, but youíll need to pay tax if you withdraw form a traditional IRA. You should discuss any withdrawals that you do make with your financial advisor and your tax advisor. This could be an opportunity for you to build your wealth in a new way, so make an informed decision. 


Happy saving and happy house hunting!





Posted by Anthony Susi on 5/29/2017

Saving money is never an easy task. And saving money for a down payment on a home is especially difficult. Between trying to pay down debt, whether it is student loan or credit card debt, a car loan, insurance, rent, spending money and trying to save for retirement and your emergency fund, how does that leave any money left to save for a down payment? Letís take a look at a few smart ways to save for a down payment. First things first: how much you are able to spend? This will determine how much you need to saveó 20% of the total home cost. Once you have that figured out you can begin to plan what it will take to save that amount. It should be your goal to save 20% or more, although there are ways around that number. Cut expenses: Cutting expenses is one of the ways to start saving more money. First, take a look at the things that you spend money on each month that you donít necessarily need. Do you buy groceries and then go out to eat 3 or 4 times week? Cutting down to only going out once a week will save you some big bucks at the end of the year. Can you cut down on any of your utilities such as cable and Internet? What about your rent? Could you get roommates to alleviate the cost of rent or move to a lower cost apartment? Invest: Investing your money, smartly, is the quickest way to increase your money and build your down payment amount. Investing, in general, will not make you crazy amounts of money really quickly (unless youíre one of the lucky few) but it does add up faster than money sitting in your savings account or under your bed. Consider opening up a CD, an IRA account (there are restrictions), or investing in the stock market. It will take a couple of years for this to really build, but the returns will be worth the wait. Be sure to read up on the best option for you and keep an eye on the market if you are planning on investing in an IRA account or stocks. Automate Savings: If you have the funds but just arenít the best saver then the easiest way to save more money is to automate it, either through your work or bank. Automating your savings will make it seem like that money was never there, therefore making it easier to forget about it and keep it in savings. Youíd be surprised how quickly your money can add up. Additional Income: If you really want to speed up reaching your savings goal then you may want to consider adding another source of income. There are so many ways to earn more money such as selling your crafts online, blogging, a second job, etc. Saving all of the money you earn will expedite your savings. There are also other sources of income such as a bonus, or tax return that are not a part of your regular income. These types of income should also be saved towards your down payment to reach your goal sooner. If purchasing a home is of utmost importance to you, but you are lacking the down payment then it is extremely important to make saving a priority. As detailed above, there are many ways in which you can accelerate the process of earning and saving more money.