I think the difference in your scenario and the OP is you used your 401K withdrawal to create cash flow and wealth. OP is talking about using his 401K to buy a personal residence. Yes, it could and probably will create equity with the increase in real estate, but still talking about two different things.

Personally, I wouldn't do it. Hard for me to say a 401K is a scam when we look at what's in it at 35 and already see a path to retirement.

I think the best thing most people can do is fund their retirement at a high rate and early, creating compounding interest.

I understand there are lots of ways to retirement and it's not one size fit all. I think many people can cash out their 401K and go different routes and do very well for themselves. I've also seen people cash out their 401Ks making huge mistakes and constantly regretting it. Based on the very, very limited information we have, doesn't seem the OP has the bigger long term view and is just wanting to purchase a house now.

With the compounding that OP has available to him between now and retirement those 401k dollars are by far and away the most valuable dollars he'll ever have. Average market history says each of those early investment dollars (40 year horizon) can compound to over $60 by the time he reaches retirement.

Combine with the fact that the market is still down, and there's a good chance he would be selling at 1-2 year lows...

My answer would be absolutely do NOT use the 401k dollars to buy a house.

Most, but not all, allow the owner of the account to loan themselves a down payment and created as a loan of your own money. So the repayment is back to you. I would check with the plan to see what options you have.

401K loans aren't part of the mortgage equation for lenders.

Thank y'all for the advice. It looks like the best thing to do is keep my money in my 401k and save up slowly but surely. It will make the first day of homeownership even better.

I regret how much I contributed to my 401k earlier in my career. I didn't know any better, so I maxed out my contributions. That money is locked and pretty much out of my control. I do the minimum now and put the rest into real estate. I have four houses, and three are income producing. I'm 90% certain that the income properties will determine when I retire, not my 401k. YMMV.

Of course, I may sing a different tune in a decade or two.

JSKolache said:

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Talk to some mortgage brokers in your area (and on this page) and see what is available in the lending market for your exact scenario. 20% down is antiquated. I mean its still a good rule of thumb, but there are many other options available these days.

And if your 401k is post-tax, then consider bumping it down and maxing out a personal roth IRA in tandem. Its more flexible and you can pull out principal $$ easier.

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What?

Antiquated? Finance doesn't change because you go into a ridiculous bull market and lenders start offering programs they wouldn't in a bear market to compete against each other. They aren't magicians. And there's still no such thing as a free lunch.

20% down means more equity in your home, easier qualification standards, no PMI, less debt to pay back, less interest to pay, and better insulation from drop in values when compared to any less.

I think everyone is missing the point of OP's post here... and assuming he's going to get into real estate investing.

It appears his question is more "B&I" board related than real estate. We don't know if he has a family, is getting married, etc. so "having roommates pay down your mortgage" is kind of a silly suggestion.

With the variables he's presented, I would suggest 2 things:

• OP - if you're really wanting a house now, and your only source of capital is your 401k, I would not "cash it out". Instead, take a 401k loan for the amount of down payment you need. You will not lose principal balance and simply "pay yourself back" on the loan. Yes, there is interest, but, as some others have said, if you have decent credit, you can get into a CONVENTIONAL loan for 3% down. $500k house? only need $15k+ closing costs. A $15k loan isn't going to cost you a lot in interest.
• If you're more risk adverse, then just save. That being said, I have no idea what your free cash flow looks like (will $15k take you 3-5 years to save?) You could also divert your 401k contributions (down to the free money from your company match) and pump that into savings until you have enough for the down payment.

Timing this market for a SFH is going to be wild for the next couple years depending on where you are... will rates drop or continue to rise? When will we see prices begin to plummet due to rates? Inventory levels have risen significantly. Houses are sitting and prices are dropping. Now.. has the price equilibrium occurred where the same mortgage on that house 9-12 months ago = today with ^ interest rates and v home value? I don't think so.

Lots of things to consider but a SFH that you plan to occupy isn't always the best investment... especially in this market of expensive debt and high home prices.

What would I do? I'd probably buckle down and get some cash saved up (if not for a house, some other impending economic doom). Ride this thing out and see where you're at in life in 12 months.

rondis23 said:

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I'm honestly curious as well. I'd think 401k in a volatile market is the last place you'd want your money in. What if the OP can find a deal on a house and the amount he has in his 401k is not a lot? He sounds fairly young with decades of retirement investing possibly left.

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Again, everyone is different. Everyone has different strategies, goals, risk levels, etc.

But a 401K isn't the last place I'd want my money in a volatile market. 401K investments are generally going to be more stable, not going to lose 50+% of it as if you're betting on stocks. I also have recently seen these losses. So why would I take my money out and risk not seeing the gains back? I mean they are just likely, probably more likely, to increase back to their previous level than homes continue to rise at their rate, if looking at longer historical patterns.

And to counter your point of he's young with decades of retirement investing left.....he's also young with decades of that money to compound via interest....

Real estate is a true and valuable wealth building and investment tool. But if used correctly. In my opinion, that isn't cashing out everything you have to buy a house sooner and one that's probably more expensive than you can afford. Sure, that house should increase in value, increasing your investment. But you also have to factor in high interest rates, upkeep, property taxes, etc.

Again, this is all my opinion. I'm close with people who've done the opposite, instead of funding a 401K they fund real estate. And they're set up extremely well. But I feel like we're confusing real estate investments and a personal house. Which are entirely different, imo.