Real Estate as Investment Part I: Finding it Hard to Save a Downpayment?

Rising rents are making it more and more difficult for hopeful home buyers to save enough money for a downpayment and closing costs.

Home ownership has a mountain of advantages, not the least of which is the ability to build equity while establishing stability for you and your family. While your investment appreciates, homeowners can receive tax benefits via deductions, develop long-term relationships with neighbors and friends, schools, churches and organizations, and enjoy the freedom to remodel, design, expand and create your ideal lifestyle.

Many people are unaware that it is possible to use retirement investments to buy a home. Indeed, buying a home IS an investment but using retirement accounts to purchase a home isn’t for everyone. However, considering the current cost of renting a place to live, and the conditions and restrictions you face in a leased property, it might make sense to transfer your cash investment to investment in real estate. The equity you build in a home that you own, could conceivably outpace the growth of your IRA or 401K.

Of course there are costs involved in withdrawing retirement funds early, and specific guidelines to be followed when using those funds to buy a home. There are certain conditions under which penalties can be avoided, but not the applicable taxes so be sure and research all the details thoroughly before going this route.

An article on Bakerate.com takes a concise approach in laying out procedures for using your 401K to purchase a home, including advantages and disadvantages, alternatives and realistic expectations. The post directs: “If you really can’t wait to buy a house, don’t have an IRA, and don’t qualify for low-cost mortgage programs, you could consider taking a 401(k) loan. Just make sure you are able to pay it back fairly quickly, so you continue to make the most out of your 401(k) plan.”

RocketMortgage has a similarly detailed commentary on the use of IRA funds to provide downpayment and closing costs when buying a home. It states “IRA account holders do have the ability to withdraw money from their IRA to buy a house. However, they’ll need to meet certain qualifications if they want to avoid a penalty fee for withdrawing the funds used for the home purchase.”

The “how to” the when and the why are all up to you, but just know that the possibility exists. Your home is a real investment in more ways than one.