401K as Down Payment on House... Pro's and Con's

[Tears Of A Clown]

Considering that my 401K has lost over 60% of it value during this financial crash, and the price of homes in my area(Sacramento) have gone down in price 50 – 70% in the past year. Finally, I can afford to buy a home, and, with monthly mortgage payments $250 -$ 400 lower then I pay for rent now.

My question is the “Pro’s and Con’s” of this. I have the feeling that I am going to lose all of my 401k eventually and have nothing if I leave it in the plan. If I pull it out, pay the penalty, and catch a good deal on a house, which I believe ultimately will go back up in value, maybe, but either way I do not have the chance of losing the 401K. I will also have a house which seams to be the best and safest investment right now. Especially, that I will even be paying less for the payments per month then I am for rent, now. Plus, the rent where I am at could get raises any day.

It seems like a no brainer!?!? What does anyone think? Please only serious replies!

[larsonstdoc]

  If the DOW goes down to 4000 you will probably lose 90% of your 401k.  If your 401k is tied to your job, you may not be able to touch it.  For me, it would be how much of a down payment you are talking about.  You really don't want to have all of your money tied up in your house.  If you don't have a water filter, food or guns they are #1 on the list.  We may have total breakdown of society so you have to prepare for that.  Good luck.  You may have to move up in the hills between Sacramento and Reno.

[Patrikc325]

If vested take out a 401k loan. 

[TheCaliKid]

the housing market is going to continue to fall, why buy stocks when they are high?

[nustada]

"the housing market is going to continue to fall, why buy stocks when they are high?"

All housing markets are micro-markets.

Where I live, there never was a boom, and houses still cost less to buy than to build. The three best gauges as I figure to determine whether or not house value will go up or down medium term is listed in respect. 1. Is the cost of the house more or less than what it would cost to build a new similar one. 2. Is the population of your area on an increasing or decreasing trend. 3. Is the house located with an uninterpretable view or some other spectacular feature (natural pond, built in cave, stream, whatever)

[nustada]

Also if it increases you monthly cash flow garenteed, it is better than the stocks. Stocks are pure gambling, if you can save a calculated amount by moving into a house then that should be good. Remember it is a myth that renting is cheaper than buying. Because after all the landlord is in the business to make money. (except in the case of duplex and up)

[scoffer]

The penalties associated with cashing out 401k's tick me off. If I had one, which I don't because we decided to pay our house off, by the time we got it paid off it didn't seem a healthy choice to invest, I would be working with all the other victims to present to congress a 401k bailout plan, where all the penalties would be waived, not that it would work, but who'd have thought that a bunch of unethical, unsavory, corrupt, felonious banks could get billions? Anything is possible in the US (sorry sarcasm).

Sorry for the rant, since you are asking here's what I would do in your situation. Get out of your 401k if you can. I don't think the housing market has reached a bottom, so you may want to do some real specific reasearch on your area, for example if there are a lot of option ARMS nearly ready to have rates re-set then you definately want to wait until these foreclosures start re flooding the market. Also, ask yourself how secure your job is, if there is a possibility for your current income  to be disrupted, then you definately want to figure that into the equation.  Whatever you decide to do I wish you luck.

[Fleahman]

tears, that sounds like a fine idea.  Good luck with your house search, remember location location location.  The shittiest house in a good neighborhood is probably better than a nice house in a shitty neighborhood.  I htink the stocks will go down further and house prices especially in california i feel have a bit further to fall but start searching for good buy and if you find it pull the trigger.  Considering rent is more than house payments and the pride you feel from owning your own piece.   Good luck

[deconstructmyhouse]

don't forget the taxes are going to be going through the roof and that is how they will get all in the end...
prop taxes especially could be killer in california, which is struggling.
can you pay triple the property taxes and not lose it for non payment?
Maybe cash in the 401k and buy a place in panama and grow coffee
seriously