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September 17, 2021
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Real Estate & Business

Scott Sheldon
Borrowing a down payment to buy a home
July 23, 2021

One of the best things you can do to proactively position you and your family to buy a home is to borrow money from your 401K, after all, it’s your money. If you’re thinking about pulling money from retirement to buy a home here’s what you need to know and the two types of accounts you should specifically stay away from at all costs.

There are however two types of accounts that you should be very careful with. The first type of account is called 401A and it has to do with your employer. So if you’re joining a new employer, for example, and they only offer a 401A. Know this: a 401A specifically will not let you borrow money or withdraw money from that account under any circumstances at all until you are at retirement age. This can become potentially problematic thinking it is a 401K that does allow borrowing ability.

A 401A is not to be confused with a 401K, where you provide a certain financial contribution and your employer also provides a match for your contribution. 401A is employer-driven, and the employer contributes all of the money into the 401 and that is the defining difference.

The next type of account that you should be very careful of is 457A, which only allows borrowing ability under specific unforeseen circumstances which have to be specifically must document and you guessed it scrutinized and examined.

These are as follows:

• foreclosure

• eviction

• notice to vacate

• an act of God

It has to be an extenuating unforeseen circumstance beyond your financial control with specific documentation relating to the event. If you can’t document it, the money is untouchable. The moral of the story is whenever possible, always, go with a 401K, which offers an employer match and offers more choices, control, and flexibility as it pertains to your unique financial situation. The good news is 401K is the most common retirement vehicle and as such works with you, not against you.

 

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.