Am thinking of taking out a loan from my 401k to meet the 20% down payment for a home loan in order to avoid pmi. Was then going to take a HELOC to close out the 401k loan. Thoughts? Pros and cons?

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Take a mortgage and then fully utilized HELOC for the difference and pay back HELOC ASAP (complete payback before draw period).

I did this so I could put down less than 20% and NOT have PMI. My broker hooked up this plan and it’s worked great, for the house we wanted with no PMI penalty.

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In my example above, you’d need the property you want to buy appraised at $1M, if it’s priced at something higher, say $1.1M - you got some negotiating to do.

If the house appraised at $1.1M as priced, you’d have a max mortgage size of $880k to avoid PMI.

I had no problem with the bank appraising my house to the exact purchase price, which was my offer as well. Neither my realtor nor broker were concerned about the appraisal coming through. I don’t think it’s a concern unless you end up in a very big bidding war or there’s something seriously problematic with the property - in which case you’d probably be rethinking a purchase anyhow.

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Yo my friend... Research Dave Ramsey on YouTube and what he teaches concerning this, I promise you it would be worth your time. HELOCs are often bad news and you’ll just be incurring more unnecessary debt. I want you to get in that home with as little debt as possible.

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Do not touch your 401k.

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Don't do it, unless you want to take serious risk. 401k loans need to be paid immediately upon departure or they are income. You are removing money from the market. Fees are usually not cheap.

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this is not necessarily true, speaking from experience

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OP, look at credit unions for loan options. I put just 10% down and didn’t have PMI. Don’t take money out of your 401(k) if you can avoid it.

smart

Why not take out a mortgage at 80% and a HELOC to offset what’s left of the 20% and avoid the 401k loan and other issues? Seems like an extra step...

And I’m not advocating any of it, just throwing that out there

It’s never a good idea to touch your 401k, but again if your getting a killer deal and there’s substantial value then I would go for it. If not I rather pay pmi for a few years and either I save the remaining amount or the value goes up where you can refi with higher comps. Btw, how big of a mortgage?

300k mortgage. Wanted to take out 40k from my 401k and use it towards the down payment. Then once settled into the house, I would take out a HELOC to quickly pay my 401k loan back. By doing this I would avoid a 250/month pmi

I currently don't have 20% to put down, which would result in PMI. I was going to take a loan out from my 401k, which needs to be paid back within 10 years at 4.5% interest which is paid into my account.

I don't plan on keeping the money out of my 401k account for long. Was just going to take out a loan to meet the 20% down payment needed to avoid pmi. Once I've moved into the home I was going to quickly take out a HELOC and close out the 401k loan completely.

My HELOC rate is the prime rate and took me to 86% LTV. I only had 14% down in a VHCOL area and knew the market was turning soon and waiting wasn’t going to work so I stretched. For me the math worked out cheaper. Waiting for 20% down would have meant my mortgage rates winded up higher. Everyone’s risk tolerance is different. We knew we had the cash flow to payback HELOC ahead of schedule and well before any balloon payments. And we made the right call since getting in the market when we did means we are sitting on an additional $100k of equity 4 years later from appreciation (appraisal increase in high growth area), besides the lower mortgage rate.

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Do it. I took a 401k loan to meet the 20% down requirement. Got a 3.125% on a 30-year fixed jumbo. Diligently paying the 401k loan off using payroll deduction and will be done in 12 months.

As someone pointed out earlier, do keep in mind the 60-day rule if you quit or lose your job.

Haha..I took a 5 year loan in 2015. So repayment is over 120 paychecks (96 done, 24 to go). Also helps that we are a dual income family.

Here’s a thought - Take a 5- or 10-year loan from your 401k and use payroll deductions for repayments. If the market tanks in the next 2-3 years, Fed will cut rates and lenders will follow, take a HELOC and payoff your 401k lump sum.

So benefits are you are selling high and buying low with your 401k, and getting the benefit of lower HELOC rates too. It depends on your appetite for risk (e.g., if you lose your job with a downturn and need to repay your 401k but cannot find a willing lender?)

I have been building my savings (pay raises, tax refunds, bonus) where I could pay off my remaining balance immediately but I took a loan when the S&P was at 2000 and today it’s at 3300 so I would be selling low and buying high if I were to prepay my loan. If the market goes down tomorrow by 20-25% I am writing that check to my 401k administrator

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OP, your head seems to be in the right place. It looks like you’re opening up options for yourself which is critical.

Ponder this... depending on your age and total retirement assets, some portion may be appropriate to invest in bonds and safer fixed income securities. A loan fits that bill. If you keep the loan outstanding, look at your overall portfolio and rebalance your risk exposure, taking the loan into account as an asset.

What if you get laid off and have to repay the 401k loan, but can’t get a heloc because you don’t have enough equity or a job?

I’d just suck it up, pay the PMI and work to pay down the balance to 80% so it goes away.

Get a loan through SoFi. 10% down and no pmi

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