‘I want to move quickly with rates starting to drop’: Should I use my 401k to help with the down payment on a home in CA?

Hi Money Minder,

Sup y’all, first time here in the sub. I’m a 29-year-old dude in CA. I work in Maintenance and bring in 95k a year before taxes. Sorry for the long text

I’m trying to snag a home/townhome/condo in the 350k range after clawing my way out of debt and boosting my credit score over the past two years (word of advice: steer clear of debt forgiveness programs unless you want your score to take a nosedive). I’m just over the 620 mark to qualify for FHA.

Feeling a bit antsy to move out with my lady and I’m not down with renting since I think it’s a waste of cash (just my opinion, maybe I’m being too stubborn). But I’ve wasted enough time and can’t handle staying at home any longer (haha). With rates dropping, I’m itching to make a move and wondering if dipping into my 401k is a smart move for the down payment.

I have around $8,200 in cash, $29k in my 401k total ($11k withdraw-able penalty-free, $8k available through a loan). The reason I’m considering touching this money is a couple of things:

1) I can’t touch this account to add more funds or transfer it elsewhere since I’m still employed by the company who manages the 401k from my management days. I’ve tried calling multiple times with no luck.

2) My current gig with the union has a new 401k and 2 pension accounts that stack up to about $16 an hour on my working days. I feel like I’m set enough to tap into my original 401k without stressing too much.

Any tips or words of wisdom are welcome! Thanks so much!

Welcome to the sub! First of all, congratulations on your hard work in getting your credit score back up and being on the path towards achieving your goal of home ownership. It’s great that you are thinking ahead and considering your options carefully.

Given your current financial situation and the fact that you are looking to purchase a home in the near future, using or withdrawing from your 401k should be approached with caution. While it may seem like a viable option to help with the down payment, it’s essential to consider the long-term implications.

Firstly, withdrawing from your 401k before retirement age can have tax implications and penalties that could impact your overall financial stability. It’s crucial to weigh the potential costs and consequences of tapping into these funds against the immediate benefit of purchasing a home.

Secondly, considering your new role in the union with a new 401k and pension accounts, it’s important to assess whether these additional retirement accounts provide you with a secure financial foundation for the future. If you feel confident in your new retirement savings, then utilizing a portion of your previous 401k may be a more viable option.

However, before making any decisions, I would highly recommend consulting with a financial advisor to discuss your specific situation and explore all possible avenues for financing your home purchase. They can provide personalized guidance tailored to your needs and help you make an informed decision that aligns with your long-term financial goals.

Remember, purchasing a home is a significant financial commitment, and it’s crucial to ensure that you are taking the most prudent approach to achieve your homeownership goals while safeguarding your financial future. All the best from THE MONEY MINDER, and I wish you success in your homebuying journey!