using retirement money ?

[SquareOne]

What are the opinions or experiences with taking money from a retirement account to pay cash for a house ? Our credit is bad so financing the traditional way is out. We want both home ownership and not having a mortgage. I know there are severe penalties but lets hear some thoughts on this.

[AngelinaCat]

DON'T do it.

That is my inital knee-jerk reaction. But let's get some questions answered first:
How old are you, and how close to retirement are you?
Are you considering filing BK?
Are you cashing out the retirement account, or borrowing from it?
What is the price range of house you are looking for?
Would you be paying the entire amount?
Is there the possibility of a move in the next five years, or will this be your 'Forever' home?

Answers to some of those questions will help us prepare better answers. Thanks, and welcome to the forum.

[kenshirley]

Also. owning a home free and clear in retirement can be a bad thing. I have known 3 couples just older than us that owned their homes free and clear and had medical problems that resulted in BK for them as their medical insurance did not cover all the costs.
They all lost their homes as they had an asset that could be sold to pay the debtors.
Think about it.

[SquareOne]

we are early 50's, healthy, and want to continue working. for forum sake lets use a price range of 200k. i would be paying the whole amount. i would not borrow from my retirement account but just take out the amount needed. as far as BK in the future i won't rule that out but need legal advice.

[AngelinaCatHub]

Also. owning a home free and clear in retirement can be a bad thing. I have known 3 couples just older than us that owned their homes free and clear and had medical problems that resulted in BK for them as their medical insurance did not cover all the costs.
They all lost their homes as they had an asset that could be sold to pay the debtors.
Think about it.

This is a good point. However, they can do this, purchase the house, sell it to their children in an undivided equal interest, for a buck, with a life estate on the house. You can still homestead a life estate as we have.

Then upon death of both partners, the house becomes fully owned by the children and it would also avoid probate. 'Hub

[kenshirley]

OK, I had a heart attack at 47.
I knew an engineer that dropped dead from a massive heart attach without warning at 49.
Anyone can develop a cancer or other malady that could overtake the abilities of their medical plan at almost anytime.
And at 50 or so, I will assume you are still working. What would happen if one or both of you could not work and could not pay your bills as a result.
Just food for thought.

[AngelinaCat]

Please understand that while there are attorneys here who are members, in NO WAY shape or form should any advice or opinions rendered here on this forum be considered legal advice. For that you need to hire an attorney.

[AngelinaCatHub]

we are early 50's, healthy, and want to continue working. for forum sake lets use a price range of 200k. i would be paying the whole amount. i would not borrow from my retirement account but just take out the amount needed. as far as BK in the future i won't rule that out but need legal advice.

I would get legal advice right now on what you are about to do. I firmly advise you not to do this. It will cost you a lot and your 401K is exempt. 'Kenshirley' is right in the fact that you have a salable asset. I would wager any lawyer is going to tell you the same as I have. 'Hub

[kenshirley]

I would not like to be kicked out of my home that I had invested in heavily.
There may be legal ways to try to avoid this as "Cat" says.
But states vary so just watch yourself and protect your assets from the unknown.
You may be healthy today and find something that could kill you in a matter on months.
I have buried a few just that way.
Planning is the key.

[AngelinaCat]

we are early 50's, healthy, and want to continue working.

Good luck on being able to keep working in this economy. My FT job was outsourced two years ago. While I have a good PT job, it doesn't pay the bills. I have not been able to add hours there, or get another FT job, and I know that at least one position I applied for, and was more than qualified, went to a 30 year old. I am 57.

You might want to read the following article:

http://www.bkforum.com/showthread.php?t=46418

[kenshirley]

Yes, a number of years ago (early 90's) we were fat and happy too making high $60s for DoD. Then our base came up on the closure list and I took early retirement to save our family medical and my wife was out of work for a year.
Nobody wanted an "older woman" or so it seemed that had made good money and was looking for anything to make money.
My daughter lost her $60-70K a year job almost a year ago. She can only find entry level jobs that barely pay the cost of child care for her one child now in the Phoenix area.
They are filing BK and moving here with us to start over.
The economy is very rocky and I am somewhat convinced that we are headed into a depression if things don't change in the very near future.

[AngelinaCatHub]

Yes, a number of years ago (early 90's) we were fat and happy too making high $60s for DoD. Then our base came up on the closure list and I took early retirement to save our family medical and my wife was out of work for a year.
Nobody wanted an "older woman" or so it seemed that had made good money and was looking for anything to make money.
My daughter lost her $60-70K a year job almost a year ago. She can only find entry level jobs that barely pay the cost of child care for her one child now in the Phoenix area.
They are filing BK and moving here with us to start over.
The economy is very rocky and I am somewhat convinced that we are headed into a depression if things don't change in the very near future.

KS, I am convinced we are. Also, the super inflation coming is going to kick those of fixed income in the butt. I believe after this thought, the OP may just have the right idea of turning soon to be worth less, money into a house. Even if you cannot afford electricity candles are cheap. He, the OP does need to think hard on this situation though. 'Hub

[HHM]

Bottom line, cash is king. Using your retirement to buy a house outright is probably not the best use of those funds. Real estate prices are not going up any time soon, so from a pure investment standpoint, this would be a poor use of funds. Plus, the penalties are simply not worth it.

Also, you should really think about your "housing needs". Do you really need a house or home ownership. Relative to renting, home ownership is always more expensive (the cost of upkeep etc) that in most cases can outweigh any tax advantage.

My thought, save the retirement funds, invest them wisely. One thing you haven't shared is why, exactly, your credit is bad. If that is the case, you may need BK now to help clean things up so you can buy a house using more conventional financing in a few years.

[SquareOne]

we are both fortunate to have careers with good jobs. and if we had a home paid for then ( and only then ) we could get by on one income if we took the mortgage payment ( rent for now ) out of our monthly expenses. We recently lost our home to a forclosure and have been renting.

[kenshirley]

KS, I am convinced we are. Also, the super inflation coming is going to kick those of fixed income in the butt. I believe after this thought, the OP may just have the right idea of turning soon to be worth less, money into a house. Even if you cannot afford electricity candles are cheap. He, the OP does need to think hard on this situation though. 'Hub

Yes, my folks lived through the 20's and 30's so I know about this stuff.
I am really worried at this point that money will be devalued and costs will be accelerated and the retirement income we get (assuming we still get it) will provide for the needs of our family.
The good news is that we are on the very edge of a great big national forest with lots of game and I have enough guns and skills to feed us if I have to.