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How sensible is it to make down payment from retirement funds or by taking out a fresh loan?

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 28th Aug, 2012 02:31am
If you take out a mortgage loan, you are required to make down payments. In case of a traditional mortgage loan, the down payment amount is 20% of the purchase price of the home. So, before taking out a mortgage loan, you must make provision for the down payment amount. You must be very careful about picking the sources to make the down payment and need to ensure that it does not put financial pressure on you in the future. Unless and until you are able to arrange the amount in a financially justified way, you should abstain from taking out a home mortgage loan.


Here one thing which is very important that you should not use your retirement funds to arrange the down payment money and you should not also take a fresh loan to arrange the down payment amount. Retirement fund is meant to safeguard you in your golden years when you are not employed. So it would be unwise to use your retirement fund to finance your mortgage down payment at the cost of jeopardizing your future. Again, taking a fresh loan to make the down payment of your home loan is not financially justified.


For down payment purposes you may seek other sources of funding, rather than using your retirement funds or taking a fresh loan. You need to plan well in advance to arrange the down payment money. Here are our tips which will help you a lot to arrange the down payment money.



  • Liquidate your bank fixed deposits or stock investments or mutual funds

  • Accumulate your bonus or the extra money that you earn

  • Arrange money from close friends, family members or relatives

  • Curb your expenses so as to save more

  • You may take loan from your employer

  • Take help from down payment assistance program



You can take recourse to the above mentioned ways to arrange the down payment amount. It would be unwise to take out a fresh loan to pay the down payment. Using your retirement funds to make the down payment will not also be very prudent.
Posted on: 28th Aug, 2012 02:31 am
I want to buy a home in the near future (in the next 2-3 months). Most conventional lenders are asking for a down payment of around 20%. Now I don't have so much of money saved in my account. But I have a retirement account. Can I withdraw money from that account and pay for the down payment?
Hi Jilly,

You make the retirement savings in order to safeguard your golden years when you won't be able to earn any money for yourself. I personally feel that it won't be a good option to use your retirement savings in paying the down payment for your home. It will be better if you could wait for sometime, save the required amount and then think of buying a home.

Take care

Sara
Posted on: 28th Aug, 2012 02:55 am
As long as you can document the loan, you can utilize your retirement account for a down payment; however, your payments to pay back the loan will be figured into your debt to income ratio. Is there a reason you want to put 20%down? Are you trying to avoid mortgage insurance, because we offer programs with as little as 5-10% down on the conventional side, if you qualify.
Posted on: 28th Aug, 2012 04:03 pm
It would not be wise to use your retirement funds to arrange the down payment amount. If you can arange the down payment amount from some other sources, then it is fine. Otherwise, I would suggest you to wait for some more time and try to increase your income.
Posted on: 29th Aug, 2012 05:42 am
>>Can I withdraw money from that account and pay for the down payment?

Yes, but look into borrowing it from the account instead. That way you'll be paying yourself back the interest, and will have funds available when it's time to retire.
Posted on: 29th Aug, 2012 06:13 pm
It would not be wise to use your retirement fund for making the down payment required to take out a mortgage loan. I would suggest you to keep your retirement funds untouched and arrange the down payment money from other sources. If not possible, then you should abstain from taking out the loan.
Posted on: 03rd Sep, 2012 03:53 am
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