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 9/25/2017

The biggest area of your life that you need to understand before you buy a house is your own finances. Before you know what kind of house you can buy, youíll need to understand your own buying power. While things like square footage, how many bedrooms you need, and finding the right neighborhood are important, you canít go very far without some type of financing. While understanding how much you can spend on a property is one of the more serious parts of buying a home, itís something that youíll want to do. Knowing what you can spend on a home is a step to helping you land a home you love. If you understand your own numbers, youíll know the chances that you have of an offer being accepted on a place you love.  


The Elements Of Your Buying Power


Your Credit Score


This little three digit number has a lot of meaning behind it. This is the most basic piece of information that lenders use to determine your loan worthiness. The factors that influence your credit score include:


  • Payment history
  • How much you owe
  • Length of your credit history
  • Mix of credit accounts
  • How much new credit you have opened


A low credit score is somewhere under 620. Having a score this low doesn't necessarily mean that youíll be denied for a loan, but the type and amount of the loan youíre offered can be impacted. Youíll also face higher interest rates because of a low credit score. This means your mortgage could be considerably more expensive than if you had a higher credit score. 


Down Payment


The 20 percent down as a rule of thumb actually offers many benefits to your buying power. This means that youíll need 20% down of the purchase price of the home in cash. If you put this amount of money (or even more) down on a home, it eliminates the need for you to have to buy PMI (Private Mortgage Insurance). Youíll even be able to negotiate a lower interest rate. A large down payment may be especially helpful in competitive markets where there is a lot of buyer competition.


How Your Financial Picture Appears


Your assets and your debt-to-income ratio are also important factors in your financial picture that you present to the lender. Basically, all of these numbers let both the lender and the seller see how committed you are to buying a home. It is one of the biggest financial undertakings of your entire life. If you canít show financial responsibility, then it may be a bit difficult for lenders to see that youíll actually pay your loan back in a timely manner.


The better all of your financial numbers are, the more buying power that youíll have. If your numbers are good, youíll be able to afford more house. While it may not be the most exciting thing to look over all of your financial numbers, itís a vital step in the process of your journey to home ownership.




Tags: Buying a home   finances  
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