401K money to buy house after discharge ????

[doingpoorly]

Here goes,

Originally we planned to reaffirm our current mortgage and stay here but over time we realized that we really couldn't make it with a big mortgage payment and now we intend to stop paying the mortgage and allow the bank to foreclose. They never bothered to send reaffirmation paperwork thankfully.

Obviously we still need a place to live and since now is a great time to buy we are planning to take a loan and hardship withdrawal. ( Yes, I know about the penalty/taxes involved, but it is still less than the cost of mortgage interest costs we would pay if/when we could ever get a mortgage again )

In the end we would have a mortgage free home. ( very, very modest...in other words, tiny ) and in 5 years we would have 1/2 of our 401k back and we wouldn't be strapped each month because of the high mortgage payment. We could really breathe.

Any reasons why this would be a bad idea after discharge ? I don't want to cause trouble for our case, but it IS discharged after all.

Thoughts and suggestions please.

[doingpoorly]

Does anyone have any thoughts on this ?
Thanks

[HHM]

I don't like the idea, but that is just me.

Real estate is still going down, so you are taking retirement money that can be invested in relatively stable assets and putting into an asset class that is losing money.

[music12]

it is dangerous to take a loan from your 401(k). if you lose your job you have to pay it back right away. and everybody is losing their jobs.

whatever you do now will not have any effect on your bk case. you are discharged with a no distributino report, so the closing is just clerical.

[doingpoorly]

Thanks for your thoughts.

I know the risks of taking a 401k loan ... that part doesn't bother me as much as the thought of my decision to do this being a problem somehow with the bk.
I am doing it right out of the discharge "gate" and don't want problems.

I understand why some may feel using the retirement money for this isn't the right thing to do and I appreciate your concerns on that issue, but dh and I have discussed this at length and still feel it is best for our situation.

As far as real estate going down, where I am they are pretty low. This part of Fl was hit pretty hard. Really, the prices are about where they were 15 years ago. I have to go somewhere, I can't make the current house payments and taking a gamble on the real estate market feels better than wasting money on rent.

I am buying a foreclosure that is costing me $50,000. DH has extensive experience in home renovation (previous employment) and will be fixing it with an additional $10,000. Even in this market if he did the work and wanted to sell it tomorrow he could get $80,000-$90,000 for it. Prices would have to drop more than $20-$30k for this to be a mistake.

Like I said...I just don't want my decision to be a mistake as far as the bk is concerned.

[justbroke]

While you can actually do this, I don't think it's really a good idea at this point. Especially buying the home you live in, because you're probably not being objective about that decision.

I really advise against the "hardship" withdrawal. Not only will you be hit with 30% or more in taxes in the current year, you will not be able to avoid paying the 10% penalty on top of that. So you're talking 40-50% loss on the (hardship) money immediately. The reason I don't think you can avoid the 10%, because you would be using the money to pay off your primary residence, not "purchase" it, or prevent foreclosure. So, the hardship withdrawal is a non-starter.

Now before I proceed further, I do suggest you speak with a retirement planner or financial planner immediately. I don't know what your age is, but as you get into your 50s, you shouldn't be "playing" around with your retirement fund at all. If you're in your 20s and in good health... keep reading.

If you're in your 20s, and have well established and stable employment (professional, doctor, lawyer, etc) -- which is probably an oxymoron anyway -- a 401(k) "loan" could be okay for your retirement planning purposes. Even then, you need to sit down with a planner and look at what you want to do. Also, this housing market is just crazy! When I surrendered my investment property last year, it was worth $205K. It sold at the recent Trustee Sale for $98K. Don't throw away good retirement money... by chasing good money with a bad investment.

What are we talking anyway? If you're looking at your own (current) home and thinking of paying off the mortgage... I might be disinclined to acquiesce to your request. I don't know anything about the difference between rents and such in your market versus ownership, but maybe saving up for a while and buying some REO property "may" be worth it.