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A bad time to take money out of a 401k. Seems like you could miss out on upside if the macro environment improves. However putting 20% down feels great and avoid PMI. Also the payment on 401k loan is a payment + interest.
Probably would go with the 401k just to feel more secure and lower monthly mortgage payment.
I believe you still are “cashing out” during the term of the loan and slowly paying back in so you do lose out on potential growth
Do not take out of your 401k when market is down. You can’t buy a house right now if you only have 5% to begin with.
And why can't I buy with 5% down?
M1 is correct. When you take a loan from your 401k, you are cashing out. Your plan administrator will sell a portion of your assets to fund your loan and then you pay yourself back over 5/10 years including the interest. So in today’s environment you could possibly be selling low and then buying high over the next 5/10 years.
I took a 401k advance in 2016 to cover approx. 6-8% I needed to hit the 20% down. Each time the market goes down by 10% I throw in an additional $2k. So I figure I will pay off the 10 year loan in 8 odd years (unless the market goes down significantly over the next 12 months)
I figure with the savings on the PMI + lower interest costs ( 20% down will get you a better rate compared to 5% down) + home equity appreciation I have come out ahead.
Will you stay in the home for a long time? Could you use a rebalancing of your overall portfolio for more housing, less stock?
Those are the two questions you need to ask yourself before making a decision.