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Should I use funds in 401K as a down payment?

Borrowing against account may avoid harsh penalty taxes
Published on May 17, 2004

"Is it advisable to use funds in my 401K as a down payment?" You don't want to withdraw funds from a 401K to make a down payment, but you might want to borrow from your account. Whether you do or don't should depend on whether it costs more or less than the alternatives, which are to pay for mortgage insurance or for a second mortgage. Account should also be taken of the risks inherent in these different options. As an illustration, you buy a house for $100,000 and have enough cash to pay only $5,000 down. Lenders will advance only $80,000 on a first mortgage without mortgage insurance. One source for the additional $15,000 you need is your 401K account. A second source is your first mortgage lender, who will add another $15,000 to your first mortgage, provided you purchase mortgage insurance on the total loan of $95,000. A third option is to borrow $15,000 on a second mortgage, from the same lender or from a different lender. 401K: The general rule is that money in 401K plans stay...

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