Yes, you can use up to ,000 of an IRA, penalty-free, to purchase your first primary residence.If you have a 401(k), you may be able to borrow money from your account and pay it back over time.You’re probably thinking that it’s terrible for a personal finance site to recommend this, but the fact is, people do it whether we tell them it’s a bad idea or not.
Before you become addicted to Zillow or Realtor.com, spend some time mulling over if you’re really ready to commit, and how much house you want to commit to.“Stretching your debt-to-income ratio to the maximum 45 percent allowance is a risky proposition unless your income is poised to rise in the future or any other consumer obligations you have are poised to be paid off,” Scott says.
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Most lenders will not approve you for a mortgage if your DTI ratio exceeds 43 percent. Learn more about how to calculator your debt-to-income ratio here.
So let’s say you make ,000 per year, the average full-time salary of college grads in 2012. Banks won’t approve you for a home loan, unless you do one of two things: Getting a higher paying job may seem like the obvious solution.
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Luckily, a study by the Employee Benefit Research Institute, shows that 87 percent of 401(k) plans offer loan options.
This differs from traditional IRAs, which only allow early withdrawals made before age 59 ½, and charge a 10 percent penalty tax.
“The minimum you need today is 3.5 percent down for an FHA loan or five percent down for a conventional loan.”Of course, the more you put down, the less you pay each month, and the better interest rate you’ll get.
But I only put five percent down and my interest rate is just shy of five percent.
If buying a home is worth losing a little bit (sometimes a lot) from your retirement savings, you can do it.