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Author: needadvice Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127262  
Subject: Re: Downpayment Date: 12/10/2001 4:59 PM
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Hi!

You may have already chosen to go another route, but I'd like to offer up some advice garnered from my own personal experience.

My fiance and I have chosen to do exactly what you describe here. We had both been agressively putting away money into our 401(k)s and stock portfolios and didn't really have any other cash savings to speak of. After doing a lot of research and after talking to our mortgage broker, we decided that it was better for us to scrape together a 5% downpayment rather than come up with no downpayment money of our own. It allowed us to get what we think are great rates on both our loans. Doing the math, it made a lot more sense to do an 80-15-5 over an 80-20 loan. But, in order to get the 5% down, we each needed to take a loan from our 401(k) accounts.

People warn against taking a loan from your 401(k) because you are potentially reducing the size of your return in the long term. But, if you're young like us and still have forty years or more until you can otherwise touch the money from your retirement account anyway, why not do it? The interest you pay on the loan you pay to yourself. The interest goes directly back into your account and earns you your money back and helps to offset any "loss" you experience from having taken the loan. But would you really considering gaining your own home a loss? Also, if you are not borrowing very much money from your 401(k) you can probably afford to pay it back in as soon as one year. I'm not sure about this, but I think that, usually, the payments on your 401(k) loan can be deducted directly out of your paycheck. I chose a five-year repayment option and am making such minimal payments twice-monthly that I probably won't even miss the money!

Good luck to you, whatever you choose to do!
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