When you’re buying a house, one of the hardest parts of the process is coming up with the money you need for the down payment and additional closing costs. While you can use the cash you’ve saved up, it’s not always enough to help you avoid paying for mortgage insurance. This leaves many people wondering if it’s okay to tap into their retirement savings to help buy a house. The easiest type of retirement account to utilize for first-time home buyers is a Roth IRA.
There’s a Cap on What You Can Borrow
If you have a Roth IRA, you’re able to take $10,000 from your account and use it as a full or partial down payment for your home. If you’ve had the account for fewer than five years, you’ll have to pay income taxes on the amount you take out. However, if you’ve had the IRA for more than five years, you’re able to borrow the $10,000 without having to pay taxes. Keep in mind that the $10,000 is the maximum you can use in your lifetime. If you withdraw the full amount, you won’t be able to use your Roth IRA for down payment assistance again in the future.
You Must Be First-Time Home Buyers
There’s a catch with the IRA down payment disbursement—you must be a first-time buyer to qualify. Luckily, the IRS is flexible. They’ll consider you and your family first-time home buyers as long as it’s been more than two years since you purchased your last home.
Make Sure It’s the Right Choice
Withdrawing any money from your Roth IRA decreases the amount of money you have saved up for retirement. Before you make an application for withdrawal, make sure it’s in your best interest. Think about where the money will do the most good for you and your family. If the stock market is booming and you’re seeing great returns month after month, borrowing against your IRA isn’t a great idea. You’ll end up missing out on those returns. However, if the stock market is under-performing or your account is losing money, withdrawing the $10,000 to invest in a property that will increase in value regardless of the stock market’s conditions is in your best interest.
Explore Your Options
There’s more than one way for first-time home buyers to get down payment assistance and withdrawing money from your IRA is just the tip of the iceberg. Contact us to learn more about your options.