I just read an article by Stephen Fishman for Inman News. The article was titled “Short on real estate down payment? Use your IRA.”. You may be able to view it by using this LINK . The gist of the article supports dipping into your retirement account if you are a first time home buyer and need up to $10,000 ($20,000 if married and spouse has IRA account as well). The IRS description of a first time home buyer in this scenario means first time in two years.
I don’t want to be a wet blanket, but isn’t part of the reason we got into the real estate jam had to do with creative financing. Yes, the money in the IRA account is legally available. I suppose it seems innocuous when you use the initials regarding the source of the money. IRA sounds much easier to raid than Individual Retirement Account. It is not a rainy day savings account, it is a retirement account. It was set up to provide an income for the owner when they retire.
I realize that buying a home is a bit more difficult today. Banks and other lenders do require a larger down payment for a conventional loan. Did I miss something? I am pretty sure that FHA loans are still available and they require a much smaller down payment. Yes, there is an additional cost to an FHA loan, but the loan may not require you to dip into money you will need in the future.
How much can dipping into that nest egg impact your retirement? Well, using conservative estimates, that $10,000 or $20,000 you pluck out for down payment money could be worth $50,000 or $100,000 in 25 years. Simply put, that means the money would grow 5 times by the time you retire. What do you think the down payment money will be worth? Do you believe it will grow 5 fold while you are in the house? In most cases, you will be moving again in 5-7 years and you will burn up your equity in closing costs and down payment on your next home. Retirement money is for retirement. No one can portend what will happen with social security and in light of the financial mess that is occurring every where, prudence indicates you should be setting aside money to offset the cost of retiring. You might want to think about all those retiring today that have a good chance of out living their retirement money.
The picture is not what anyone plans to have in their pantry for dinner consumption. There are retirees that are choosing to eat cat food because they don’t have enough money for food. They did not plan to be in that situation. They failed to plan to be in a better situation. Some of them even spent money set aside for retirement. Decisions made while you are in your twenties and thirties can and do come back to bite you.
If you want to buy a home. Sit down with a lender. Find out what you can do with the cash that is readily available. Find out how much house you can comfortably afford on the amount of money you are comfortable paying each month. Then take a deep breath. Don’t be caught up in the “interest rates are historically low” headlines. Don’t believe that if you don’t buy now, all the bargains will be gone. Those are general, emotional head line grabbing statements. Be patient, if you don’t have enough money in savings to buy a home, it probably isn’t time for you to buy.
Should you be graced with a long life, you will have plenty of time to buy a home. It is better to make sure you will enjoy where ever you live when you retire. I will repeat the mantra one more time. Retirement accounts are for retirement. Don’t let sloppy government regulations fool you into believing anything else.
I sell homes for a living. Your waiting until the time is right won’t affect me. There are people that are in a position to buy now. Your waiting will guarantee that you put your ducks in a row and made a conscious decision to be prudent and wise.