How low money down can I go?

Question

Hi! I'm new to the real estate investment game. I'm looking at getting a first time homebuyer loan for a property where I will live in one side and rent out the other. I found a bank where I can get a loan as low as 3% down and I plan on using my 401k as a downpayment to cover that (my retirement company allows that with no penalties).

I'm in the process of starting a second job and I don't have a lot of money in the bank. I'm wondering if anyone has suggestions on how I could possibly handle the costs of any closing costs or repair costs.

I was thinking that I could offer more money if the seller agreed to pay all closing costs and if repairs were needed maybe I could do two offers, one where I pay them more and they do the repairs and one where I pay less contingent on me getting a property improvement loan.

Thomas Krajewski · Answer

I have about $7500 in my 401k right now.  That amount isn't going to change since I'm now on a pension at my current job.  I have heard that you can buy and hold real estate with your 401k but my understanding was that I all the profits would go back into my 401k.  While that would be great long term I think it would be beneficial in the short term.  Although I'll defer to the professionals here.And I plan on withdrawaling this from my 401k.  I spoke to my 401k provider about this and they said I could do it as a first time homebuyer without paying a penalty (although I would end up paying taxes on that amount).

Justin Windham · Answer

@Thomas Krajewski

Are you talking about borrowing funds from your 401k for the downpayment on your home? 3% is likely the lowest downpayment you will find for a home mortgage. Many areas have programs offering downpayment assistance that can bring your actual out of pocket downpayment below 3%. You may want to ask your lender and/or real estate professional about programs in your area.