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If you have a retirement account, you may have the cash to help you buy a home.
- Historically low mortgage rates, affordable home prices, and rising rents are enticing renters into home ownership Some first-time buyers who lack the cash for a down payment and closing costs are turning to their retirement savings accounts for money to buy a house.
- There are two ways potential home buyers can leverage their retirement savings to buy a house: Borrow or withdraw from a 401(k) or individual retirement account, or reduce or eliminate retirement savings contributions temporarily to save for a down payment.
- The rules about how one can leverage a retirement savings vary according to the type of investment.
- With a 401(k), one can borrow up to $50,000 or half of the vested balance, whichever is less. The loan, plus interest, must be paid back though. Some 401(k) accounts require repayment within five years.
- If repayment to a 401(k) is not made within the allotted time, the withdrawn amount will become an early withdrawal, triggering a 10 percent penalty and income tax payments on the loan amount.