Updated: Apr 15
What if suddenly the house that you've been eyeing for so long is on the market but you haven't saved enough for the down payment? What are your other resources?
Best Option: IRA - distribution from your Roth IRA, or your traditional IRA.
If you're a first-time homebuyer, you have a special provision from the IRAs! You can withdraw up to $10,000 of your earnings without any tax for Roth IRA) while your $10k will be taxed if from traditional IRA. If you need more than $10,000, penalty then would be applied.
Interested to know the amount that can you borrow from your 401(k)? Whatever has a smaller between the sum equal to half your vested account balanced or $50k. Quite a good amount of money, right? It also doesn't incur any early withdrawal penalty. So what's the catch? You have to pay yourself back, with interest a the maximum period of 5 years. It is also still counted as debt and may affect your mortgage application.
Housing Assistance from Your Company
If you are fortunate enough to be in these companies, you'll surely do not have to worry because they offer FREE or subsidized housing! But if you don't work in those companies, try to ask your employer if the company offers such benefits. You never know.
More budgeting tips for home buying:
According to Investopedia, between borrowing and early withdrawal, this is the worse choice.
You have to make what is called a "hardship withdrawal" and still pay the 10% penalty.
Use this to pinpoint your potential penalties if you choose this option.
With these in mind, resolve as a potential buyer to save up early on to avoid getting in this situation. You want your record to be commendable throughout the whole process, that's why saving up for your downpayment is still the best way to go.
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