Is Using Your 401(k) for a Down Payment on a House Wise?

Oftentimes, one of the main things that can hold a family back from purchasing a home of their own is the down payment needed. Although times have changed a little and some mortgage companies are accepting smaller down payments such as 5% over the old 20%, coming up with many thousands of dollars may still be hard to manage with all the other family expenses. Does this mean that this dream can never become a reality? There are ways you can still come up with some money for your down payment.

What is a 401(k) plan?

A 401(k) is a retirement plan that is sponsored by a company or employer. This plan allows workers to take out a portion of money from each weekly paycheck, put it into a retirement plan account and earn interest that does not incur taxes until the employee reaches 65 years old.

Details of how it works: a fixed percentage of earnings go into 401(k) account and the employer makes profit-sharing contributions into the 401(k) plan. The employer, as an incentive, puts extra money into the employee's retirement account. Even if you leave the employer, the 401(k) plan account stays active and is transferred to a banking institution for the rest of your life, although it is changed to an IRA account.

Should you dip into your 401(k) to withdraw a down payment amount?

Using the funds from a 401(k) for a down payment is only a good idea if other alternatives such as paying for mortgage insurance or a second mortgage are more costly. Check with your financial institution to see what your options are and how they may help you find the money you need for a down payment. Every situation is different so you need to sit down go over your finances and see what can be done.

What options do I have in using my 401(k) towards a down payment?

There is one option you can use towards securing your down payment with the help of your 401(k) plan. It is called a "hardship withdrawal". This gives you the ability to withdraw the needed amount if you abide by certain specifications. You must know though that a withdrawal is very costly. You forgo the earnings on the money withdrawn, plus taxes and penalties on the amount withdrawn which must be paid in the same year you withdraw. Since the taxes and penalties are so severe, you should avoid withdrawal at all possible.

Another option is to borrow against your account with the permission of your employer. You do pay interest on the loan but it will go back into your account as an offset to the earnings you are giving up. As long as you pay back the money, you do not pay taxes on it. The danger of this option is if for any reason you lose your job or change employers, you must pay back the loan often within as short as 60 days or be slammed with the taxes as penalties as if you were to withdraw it.

After considering all of the pros and cons of what options you have available to you for getting help with your down payment, you may just end up thinking it is easier to just go get a second job!


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Saving Big on Your Home Energy Costs the Easy Way

Energy, the price of food, The cost of healthcare, and just about everything you can think of -- prices seem to be rising everywhere. Everywhere you look you find that prices are increasing. If you have to spend more of your resources on medical care, groceries and gas and electricity, that leaves less available for other things. Important priority items like your rent or mortgage and monthly health insurance premiums are harder to cut back without making big changes, but energy usage is an area where you can do a lot to keep expenses down without making really big changes. These things won't even cost anything to start saving. Start saving money today by using these simple steps.

Use sensible window treatments to reduce your temperature inside the house. During the summertime, close your south and west facing curtains or blinds. Keeping harsh sunlight out of your home will reduce the burden on your air conditioner and will make your rooms cooler. During the winter, do the opposite. Open up on sunny days to let the sun's rays warm your rooms. In the evening, be sure to close them again to keep the warm air in.

In summertime, set your temperature to 78 degrees or even higher if you can get used to it. You can save quite a lot on energy by raising the temperature to 78 from 72 degrees. Your air conditioner is probably your home's most energy intensive system, so even small decreases can yield big returns.

Make sure your dishwasher is full before you run it, so you won't run it as often. The dishwasher is about 2% of your overall energy bill. Don't ever run partial loads. Wait until it is as full as possible before turning it on.

Use a low-flow showerhead. You will save water and additionally it will save the energy used in heating that water. You can buy one for just a few dollars. Installation is nothing more complicated than opening and reclosing the lid on a jar.

Don't leave the fireplace damper open. When you don't have a fire in your fireplace, make sure the damper is closed. This will keep warm air from escaping out the chimney.

Run vent fans only when necessary to use them. Your bathroom's vent fan can replace your home's entire volume of air in as short a time as an hour. Letting exhaust fan run for long periods of time will suck your cool or warm air from your house and replace it with outdoor air at your expense. This will increase your cooling and heating costs by a large amount.

Keep your refrigerator coils clean. If the coils are dirty, your refrigerator will build up excess heat. Pull your fridge out from the wall twice a year and check the coils and clean them. The refrigerator can use 6 percent or moreover 6 percent of the energy usage, so keep it running at its best efficiency to keep costs lower.

Fix dripping faucets. A dripping faucet can waste huge amounts of water over the course of a year. Added to that, if the leak is hot water you are sending more money down the drain. Heating your water usually accounts for about 10 to 15% of household energy costs. Those constant drips can add up to a big cost and they are easy to avoid.

Lower your temperature control to 68 in wintertime. You can save up to 5% on each heating bill by lowering your thermostat from 72 to 68.



This information was provided by Automated Homefinder, Colorado's best Boulder real estate experts.