Should I use IRA money to buy a house?

[Venus21pam]

So what do you guys think:
is it a good idea to withdraw money from the IRA to use it towards the down payment for a house?

For me that would be a difference between no money down and a 10% down payment.

Thoughts?

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[etf]

i wouldn't do it - you miss out on decades of tax-free or tax-deferred compounding. plus you get a break on mortgage interest anyway. i might be missing something, so run the numbers and see.

 

[bbaker]

Based on fundamentals & traditional thinking- I think it's a terrible idea.

ETF is right- years of compounding will be lost.

I realize it might be a little harder today, you might pay a slightly higher mortgage, but in the long run- regardless of any present day calculations- you will be rewarding yourself NOT to take money out of your IRA.

 

[AndyFromMDTAXES]

Bank of America has a mortgage product just for doctors where they provide 100% financing towards the purchase of a principal residence. I believe the interest rate is fairly competive as well. Have you had a chance to look into this relatively unique mortgage product?

 

[The White Coat Investor]

So what do you guys think:
is it a good idea to withdraw money from the IRA to use it towards the down payment for a house?

For me that would be a difference between no money down and a 10% down payment.

Thoughts?

I wouldn't do it either. A tax-protected account is too valuable to waste. You pay taxes and a 10% penalty. At least with a Roth you wouldn't have to do that but even then I wouldn't advise an MD or other highly paid individual to do it. A Roth IRA is too valuable since you'll probably make too much to use one later.

The difference between rates at 0% down and 10% down isn't much. You really have to get to 20% down before anyone cuts you a big break.

 

[WatchaMaCallit]

Actually, I would double check with an accountant. I'm pretty sure that you don't have a penalty with an IRA account. The only time you can potentially withdraw with no penalty is apparently at the age of 59, but I believe they are pushing that back.

In any case, there is a fine print and exception to this rule. That includes the Roth IRA being used for down payment for a first time home buyer! And I don't know if it varies by state!

Another question, is, what investments do you have in your IRA account? Most of the securities are down because of the impending recession, so might not be an optimal decision to sell the securities and use it as a down payment.

 

[AndyFromMDTAXES]

First time homebuyers can withdraw up to $10k from their IRAs, and that money won't be subject to the 10% early withdrawal penalty assessed by the IRS. This exception only applies for IRA money. So anyone planning to use 401k money for the downpayment on a home should first roll that money into an IRA. Keep in mind that you will still owe federal and state taxes on the money withdrawn.

First time homebuyers are anyone who hasn't owned a home for at least two years. And the $10k is a lifetime max. It's not per home purchase.

Even though you can access your retirement accounts for the downpayment on your home, I'm not a fan of that strategy.

 

[WatchaMaCallit]

First time homebuyers can withdraw up to $10k from their IRAs, and that money won't be subject to the 10% early withdrawal penalty assessed by the IRS. This exception only applies for IRA money. So anyone planning to use 401k money for the downpayment on a home should first roll that money into an IRA. Keep in mind that you will still owe federal and state taxes on the money withdrawn.

First time homebuyers are anyone who hasn't owned a home for at least two years. And the $10k is a lifetime max. It's not per home purchase.

Even though you can access your retirement accounts for the downpayment on your home, I'm not a fan of that strategy.

I knew there was some sort of exception, so only 10K from the ira? no matter, how about married couples, can they withdraw more from their roth ira?

 

[The White Coat Investor]

I knew there was some sort of exception, so only 10K from the ira? no matter, how about married couples, can they withdraw more from their roth ira?

The $10K refers to the earnings. You can take out contributions at any time.

 

[Venus21pam]

Thanks for all your replies guys.
I have actually done more research about this and it really looks like a terrible idea. I guess no money vs 10% down isn't that much of a difference in terms of interest rates and PMI so if I want to pay less for my monthly mortgage I'm just gonna go with a smaller and cheaper property to begin with.

 

[bass for less]

Yeah I think you are making a wise move there.

"Money saved for retirement should be used for retirement" 👍

Thanks for all your replies guys.
I have actually done more research about this and it really looks like a terrible idea. I guess no money vs 10% down isn't that much of a difference in terms of interest rates and PMI so if I want to pay less for my monthly mortgage I'm just gonna go with a smaller and cheaper property to begin with.

 

[Obnoxious Dad]

I see young lots of young physicians buy houses that are way beyond their means and they make themselves miserable. This is none of my business but I suggest that you buy a safe, low maintenance and modest home.

If you have school debts, live like a monk for a couple of years and pay them off. If you are married tell your spouse to be patient about the dream home. You cannot count on a lifetime of high medical reimbursements and your school debts aren't dischargeable in bankruptcy. Who knows what will happen to health care?

This is still not the time to live a lavish lifestyle!

 

[doctorloans]

My opinion is definitely do NOT use your IRA money to buy a home. You can find a ton of programs out there that will get you into something for 0%, and with today's market, I'd feel a lot better with that money socked away.

I would say buy the smallest, coziest house you really like. Just like obnoxious dad said, now isn't the time to live lavishly. Live frugally now, and when you get financially stable, you can live however you like. After you've funded the kid's college account, of course! LOL.