Creative way for down payment

3 Replies

@Anthony Howell

Two things come to mind:

1) Calculate the cost of borrowing from the 401k versus other sources of capital to see what is cheaper.

2) Research into the terms of payback. I once borrowed from my 401k then was downsized from a corporate job during a buyout. I had to immediately repay all of the loan OR take it as an unqualified distribution (pay income tax and 10% penalty on total outstanding on loan). Which meant it would be cheaper to borrow elsewhere.

I’ve borrowed from mine and it worked out great! Repayment structures can vary by company. For me, it was a 5 year repayment (each paycheck), with 5% interest back to my account. (This is great because you are still growing the amt with the 5% interest).
The downside is the high payments. I borrowed 35k and that resulted in about $310 being deducted from each paycheck for 5 years. The risky part is what happens if you leave the job or get booted. I would have to pay the entire loan back within about 3 weeks, or they would report it is as early withdrawal to the IRS and get crushed on taxes.
Because of that weighing over me, I opted to pay it off early. That said, if I need cash quick for a great deal, I’d do it all over again!