tap into 403b for closing costs on a home purchase?

[rbracch]

Hi there,

How are ya. I was wondering if you have any advice regarding the following situation: currently, I have $15,000 saved in my 403b plan. It just so happens that, quite soon, I’ll need $15,000 for the closing costs on a house that I just purchased (I am a first-time homebuyer). I was pondering a few different options in regards to how I will obtain the needed funds. Any advice would be greatly appreciated. Here they are:

1. As a first-time homebuyer, am I entitled to a penalty-free early withdrawal (up to a certain amount) from my 403b?

2. If I am not entitled to a penalty-free early withdrawal, am I able to take a penalty-free loan from my 403b? If so, will I owe interest on the loan? Also, who determines whether I can take the loan - my employer, the vendor or both?

3. If neither a penalty-free early withdrawal or penalty-free loan is available, should I "take a hit" and pay both the ten percent penalty and additional taxes on the withdrawal amount?

4. If you feel that none of the above options are good ones, is there another option (0% APR credit cards w/ balance transfer, small loan, etc.) that you feel would make more sense than tapping into the 403b?

Many, Many Thanks,
Reno

[bjl584]

5) Wait. Save up the recommended 20% down payment and a 6 month Emergency Fund. Keep renting until you save up this amount.

[Petunia 100]

15k in closing costs?! Holy cow, that is a lot. Why so high?

The IRS allows penalty free withdrawals of up to 10k for first-time homebuyers. But, your plan must allow it. Check with your plan.

And please note, something being possible does not mean that something is a good idea. I agree with Brian, if you have to borrow the closing costs, it is a good indication you are not ready to buy.

[Singuy]

We need more information before giving any advice, especially when it involves your retirement funds.

How much is the house, what is your income, what is the total cost of closing, and what is your downpayment?

As a first time home buyer, there is a way to tap into 403b with no penalty. You will then contribute back into the 403b for the missing amount..while paying yourself a small interest. Before you start doing this, I think people here are wondering if you can actually afford this house so please give us more details.

[Singuy]

15k in closing costs?! Holy cow, that is a lot. Why so high?

The IRS allows penalty free withdrawals of up to 10k for first-time homebuyers. But, your plan must allow it. Check with your plan.

And please note, something being possible does not mean that something is a good idea. I agree with Brian, if you have to borrow the closing costs, it is a good indication you are not ready to buy.

15k closing cost is not surprising. My calculated closing cost is 14.5k. 5k of this deals with my escrow account and 5k are taxes on the 300k I'm about to borrow..the rest being admin fees and title insurances.

You can drop the closing cost by about 5k if you are okay with a higher interest loan. Many banks has the option of increasing your interest rate by 0.25% or so while giving you 5k toward closing. This option is great if your intention is to pay the mortgage off in 6 years or less.

[autoxer]

I think people here are wondering if you can actually afford this house so please give us more details.

I'm also wondering if the OP's retirement savings is on track. I know it's not an easy thing to figure out, but a hasty home purchase like this could push your retirement date back many years.

[Petunia 100]

15k closing cost is not surprising. My calculated closing cost is 14.5k. 5k of this deals with my escrow account and 5k are taxes on the 300k I'm about to borrow..the rest being admin fees and title insurances.

You can drop the closing cost by about 5k if you are okay with a higher interest loan. Many banks has the option of increasing your interest rate by 0.25% or so while giving you 5k toward closing. This option is great if your intention is to pay the mortgage off in 6 years or less.

Well, an escrow account is not a closing cost. Closing costs are title insurance, recording fees, transfer fees, etc. Maybe OP is also lumping in items which are not closing costs? If so, that would explain it.

May I ask, what tax are you required to pay to borrow money? I am not aware of any such tax. Do you mean a funding fee?

[Singuy]

I believe it's called a doc stamp from the state It's different for every state, and it's a fee on the total mortgaged amount.