Are you dreaming of buying your home and wondering how you’ll save for a down payment? You’re not alone. Some people consider tapping into their 401(k) savings to make it happen. But before you decide to dip into your retirement to buy a home in Chicago, consider all possible alternatives and talk with a financial expert.
The Numbers May Make It Tempting
The data shows many Americans have saved a considerable amount for retirement (see chart below):
It can be tempting when you have a lot of money saved up in your 401(k), and you see your dream home on the horizon. But remember, dipping into your retirement savings for a home could cost you a penalty and affect your finances later on. That’s why exploring all your options is important when saving for a down payment and buying a home. As Experian says:
“It’s possible to use funds from your 401(k) to buy a house, but whether you should depends on several factors, including taxes and penalties, how much you’ve already saved and your unique financial circumstances.”
Alternative Ways To Buy a Home
Using your 401(k) is one way to finance a home, but it’s not the only option. Before you decide, consider a couple of other methods courtesy of Experian:
- FHA Loan: FHA loans allow qualified buyers to put down as little as 3.5% of the home’s price, depending on their credit scores.
- Down Payment Assistance Programs: Many national and local programs can help first-time and repeat homebuyers come up with the necessary down payment.
Above All Else, Have a Plan
No matter what route you take to purchase a home, be sure to talk with a financial expert before you do anything. Working with a team of experts to develop a concrete plan prior to starting your journey to homeownership is the key to success. Kelly Palmer, Founder of The Wealthy Parent, says:
“I have seen parents pausing contributions to their retirement plans in favor of affording a larger home often with the hope they can refinance in the future… As long as there is a tangible plan in place to get back to saving for their retirement goals, I encourage families to consider all their options.”
If you’re still thinking about using your 401(k)-retirement savings for a home down payment, consider all your options and work with a financial professional before you make any decisions.