New Buying Trend: Buyers Increasingly Finding Downpayments in their 401k

This recent article in the Kansas City Star came out at a time when two of my current clients are borrowing money from their retirement accounts to use as a down payment on a home loan. I took notice because not only did I feel like this was quite a coincidence already, they are also the only buyers I have ever had use 401k money as their down payments. To give further credence to the rising trend of using 401k money as a loan down payment, I consulted my trusty lender Nathan Steele with Pulaski Bank Home Lending who said, “Yes, I am definitely my customers borrowing from their retirement accounts more and more right now.” When asked why, his only answer was, “I guess nobody has any money.” Isn’t that the truth!

He cautioned that while it is okay, it really isn’t the savviest financial move and to be sure you can rebuild what you borrow. However, at a time with historically low home prices and interest rates, my professional opinion is that this will pay off for these buyers. Especially if they are only borrowing a minimal amount – the minimum down payment for a FHA loan is 3.5%, which certainly won’t bankrupt your 401k.

I guess the moral of the story is that if you are interested in buying right now, don’t let your lack of a traditional savings account hold you back. You might be able to get a little creative a find money in your retirement account or borrow from a family member at a low interest rate. Give me a call anytime, and I will help you through the process.

Me with two Kansas City firemen at our annual neighborhood association summer party


About the Author

Sarah Snodgrass is a residential real estate agent specializing in Kansas City's historic neighborhoods and enclaves.

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