Thinking About Tapping into Your 401(k) To Buy a Home? Read This First.

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Lately, headlines have floated an eye-catching idea about tapping into your 401(k) to cover a down payment on a home. Maybe you've caught the buzz and wondered whether that money could get you into a home faster, especially with affordability as tough as it is. 

Here’s what you need to remember. Pulling from your retirement savings is a big decision, so take time to weigh all your options first and be sure to talk with a financial expert before you do anything.

Why Dipping into a 401(k) Can Be Tempting

Data from Empower shows many Americans have built up considerable retirement savings. The median 401(k) amount for anyone in their 40s-60s is six figures (see graph below):

And when you've got a good chunk saved and your dream home is right there, reaching for it can feel like an easy call.

But dipping into your retirement savings to buy a home could cost you a penalty and set back your finances later on. That's why it's a good idea to explore other options for your down payment first. As Redfin says: 

"If you’re struggling to save enough for a down payment, you may be wondering if tapping into your 401(k) is the right option. While it’s possible, doing so comes with significant risks, like early withdrawal penalties and lost investment growth."

Before you decide, have a financial advisor help you compare the upsides to the risks. Bankrate points to a few of each (see visual):

Other Options Worth Exploring First

Your 401(k) isn’t the only way to finance a home purchase. Redfin outlines a few other options to look into before you decide what to do:

• Low and No-Down Payment Loans: FHA loans, for example, 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 reduce what you pay toward your down payment or closing costs.

Make a Plan Before You Make a Move

No matter which route you take, talk with a financial expert first. The buyers who come out ahead build a solid plan with the right professionals before starting their journey to homeownership. As NerdWallet puts it:

"Even if you’re convinced a 401(k) loan is the way to go, it’s important to understand the risks at the outset."

Bottom Line

Affordability is definitely a challenge, but that doesn’t mean tapping your 401(k) is your only way in if you want to buy.

If you're considering using your 401(k) savings for a down payment, weigh all your options and talk with a trusted financial advisor before you make any decisions. They’ll help you make a plan to fit your goals and your budget. 

Most Home Sales Close – Here’s How To Keep Yours on Track

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Few things are as rattling as the thought of your home sale falling through at the last minute, right before closing. All that waiting, all that progress, out the window.

But if you’re getting ready to sell, here’s what you should know. Even in today’s market, it rarely comes to that. Buyerswho are moving at today’s rates and prices are generally moving because of some big life change. That means they’re motivated, and eager to get all the way to the closing table.

According to the latest data from Redfin, only about 1 in 7 pending sales are falling through. Meaning the vast majority make it all the way to closing.

And the single biggest thing that puts a deal at risk is the one you have the most power to prevent. It just takes a little smart planning before your house hits the market.

Why Some Deals Fall Apart Before Closing

A Redfin survey sheds light on the most common things that trip up a sale (see visual below):

Here’s a bit more information on each one.

• Inspection or repair issues. This is the big one. When a buyer’s inspector finds a problem, whether with the roof, the plumbing, the foundation, or elsewhere, the buyer can push back, ask you to make repairs, request a credit so they can do it themselves, or see if you’ll lower your price. If they don’t get what they want, they may walk away from the deal altogether.

• The buyer’s financing fell through. Their mortgage loan has to be fully approved in time for closing day. If the loan doesn’t come together, the sale can’t move forward. 

• The buyer’s current house didn’t sell. Some buyers need to sell their own home before they can close on yours. If that takes longer than expected, you may run into some issues with your timeline or even see them give up on their move.

• There was a change in buyer’s financial situation. A new job, a big purchase, or new debt can change what a buyer qualifies for on their mortgage loan, even after they were pre-approved.

Where Your Agent Makes the Difference

Some of those reasons are outside your control, like whether a buyer’s loan clears or whether they sell their own home in time. But according to Zillow, there are a few proactive things you can do to help make sure your sale goes as smoothly as possible:

• Save yourself the headache and get a pre-listing inspection. That’s when you get your own inspection before a buyer gets theirs. It lets you find the big issues before a buyer’s inspector does, so you can fix them or disclose them on your terms, instead of scrambling once you're under contract. In this situation, your agent will help you decide what's worth addressing and what to just disclose. Handle it now, and the biggest risk to your sale is behind you before a buyer ever brings it up.

• Look at more than just the offer price. Your agent will help you weigh the whole offer, including the buyer’s timeline and any contingencies attached. When a buyer’s offer depends on selling their own home first, the success of your sale rides on a second deal you can’t see. Sometimes, a slightly lower offer with fewer strings is the safer one. Your agent will help you weigh your options and make a plan that works well for you. 

One of those is something you can’t do until you have offers in hand, but the other is something you can get ahead of right now. The pre-listing inspection.

That relatively small cost upfront can save you the much bigger hassle of a deal falling apart later. And while getting your own inspection before listing may not make sense in every market, your agent can tell you whether it’s worth it based on your market, your house, and what buyers are prioritizing in your area.

Sometimes the smartest move is staying one step ahead.

Bottom Line

Most home sales still close, and the biggest thing that could get in the way of yours is the one thing you can actually do something about.

With the right prep, your sale has every reason to make it to the finish. So, let’s connect and get your house sold.