Should You Use Your 401(k) For A Down Payment On a House?
You definitely should try to avoid it. There are misconceptions out there that you should do everything you can to pay your mortgage off, mortgage insurance is bad to have, etc. Real estate is one of the very few leveraged investments that are commonly used by households. With rates as low as they are you are better off putting more money towards your retirement than into your home where it is not working for you. Remember, if you are contributing to your 401(k) it’s pre-tax dollars but when paying your mortgage it’s after tax dollars.
If you borrow $50,000 from your 401(k) at 5.25% to be repaid back in 5 years it could cost you $37k depending on your rate of return and when you will retire.
The bottom line is that you need to consult an experience professional no matter what product or service you are buying as they can guide you on what is best for you and your family. And lastly, don’t forget, you get what you pay for!