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My wife and I are about to put our condo on the market and buy a house, as we have a new baby and we need more room. Here are the problems:

Condo Mortgage #1 We Owe $115k 5% interest
Condo Mortgage #2 We Owe $26k 8% interest

We are going to take a loss of likely $15-20k even with the market improving in my area when we sell the condo. I have plenty in my 401k to pay off the 26k, but I have heard borrowing against your 401k is really bad. Have roughly 6k in the bank and both our credit scores are over 700.

We are really struggling with the best way to do this... any suggestions?

Thank you.

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Ma171aC (Apr. 05, 2013 @ 8:55a) |

Reluctantly, I borrowed against my 401k for my son's college costs. I see these advantages: 1) the interest rate is low,... (more)

uberjcole (Apr. 05, 2013 @ 12:10p) |

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How much do you expect to sell for?

I'll never understand this, "We're having a kid our current home won't do". How many bedrooms is your condo and why do you feel like it wont be enough space for 2 people and a baby?

You know what, nevermind.. Go ahead and borrow against your 401k and when you can't afford retirement I'm sure we'll all be happy to foot the bill for your food and other expenses.

We'll probably sell for ~120k.

As for the response from jsolomonic, You don't need to understand our reasoning is the great part for you. I'm asking if anyone has suggestions because I don't want to pay it with my 401k, but to get out of the condo I don't know how without doing that. If you aren't going to be helpful please keep your opinionated rudeness to yourself.

Sounds like a very middle class situation. Stretching paychecks into as much debt as somebody will give you. How old are you two and how much in the 401k?

You need more room, but you made poor financial decisions (based only on the information I see here). You should stick it out long enough to pay it down where you're not negative.

If you MUST get out, then it sounds like you have no other choice but to cash out some of your 401k cash to pay it off and take a big tax hit. Something like $34k to get $26k cash. But this should come with a lifestyle change.

Just with the info provided...it sounds like you only have these two options. Stick it out or burn a bunch of your 401k.

If you are in a non-recourse state, you could just buy the house and strategically default on the condo.

utorth said:   We'll probably sell for ~120k.

As for the response from jsolomonic, You don't need to understand our reasoning is the great part for you. I'm asking if anyone has suggestions because I don't want to pay it with my 401k, but to get out of the condo I don't know how without doing that. If you aren't going to be helpful please keep your opinionated rudeness to yourself.


It may have been rude, but you are considering taking out of your retirement to fund the purchase of something you already have. It's your future bud. It's my opinion that your taking an unecessary step and thats based on the little information you've given us.

Facts:

You had a child
You are going to sell your condo at a loss
You will mitigate that loss with a 401k loan
We do not know what percentage 26k is from said 401k
We do not know what down payment you are planning for new place
Cost of new place
Size of either place
Have you been pre-approved for new loan


Best way to do this is not to do this. There ya go, there is advice for you. I may not post alot, but a majority of questions just like this are really just people looking for validation of their decision. Coming to a financial forum asking about taking out of your retirement to fund the purchase of a house isn't something i think people here are going to agree with. I think they're going to say to wait until you have the funds to clear your loss on the condo and get a suitable downpayment on the new property without sacrificing retirement funds.

...another thing to keep in mind. Some companies won't let you borrow against their contributions, only your direct contributions. Add the tax hit and it doesn't make sense to kill the tiny 401K you have.

tennis8363 said:   ...another thing to keep in mind. Some companies won't let you borrow against their contributions, only your direct contributions. Add the tax hit and it doesn't make sense to kill the tiny 401K you have.
Maybe this guy is 50 and has 500k in his retirement fund.. still makes it a bad idea but atleast its not completely destroying his 401k.

How much more is the new place in regards to the old? You'll have to repay your 401k right, can you afford the increased mortgage and that extra percentage to your retirement account?





*To clarify: I'm jsolomonic, dont even know why i have 2 accounts and why my browser logged me in as that one.

Ma171aC said:   tennis8363 said:   ...another thing to keep in mind. Some companies won't let you borrow against their contributions, only your direct contributions. Add the tax hit and it doesn't make sense to kill the tiny 401K you have.
Maybe this guy is 50 and has 500k in his retirement fund.. still makes it a bad idea but atleast its not completely destroying his 401k.

True, true. But I am guessing that based on his current predicament and financial choices, he doesn't

Live in the condo for a few years and save up money... babies don't take a lot of space. You can't afford to buy a new place... you don't have a down payment saved up. Raiding your retirement is a terrible option.

I bought the condo in 2006 when I wasn't married and living well within my means. It was at the very tail end of the housing boom and the market values dropped, so I got screwed. I was paying rent and trying to be fiscally responsible with my money, so decided to buy a place on my own because I had money saved up. A few years later I met my now wife and she moved in because she was renting, and then we had a child. Now we are trying to get out of the bad timing condo-buy on my part to get a house. It really irritates me when people assume without all the facts, and to your credit Al3xK, you did say "based on the info you had", which is fine.

We want out now because the market has improved immensely and feel it's our doorway out, as the condo was meant for me when I was single, not for a family.

40 and 140K in savings (401k).

That is all in 401K, ouch?

Even if you pay off the mortgage with your 401k and sell your condo to break even, you only have 6k in savings for downpayment. Are you looking to get more out of 401k for down-payment? How much will the new house cost?

utorth said:   I bought the condo in 2006 when I wasn't married and living well within my means. It was at the very tail end of the housing boom and the market values dropped, so I got screwed. I was paying rent and trying to be fiscally responsible with my money, so decided to buy a place on my own because I had money saved up. A few years later I met my now wife and she moved in because she was renting, and then we had a child. Now we are trying to get out of the bad timing condo-buy on my part to get a house. It really irritates me when people assume without all the facts, and to your credit Al3xK, you did say "based on the info you had", which is fine.

We want out now because the market has improved immensely and feel it's our doorway out, as the condo was meant for me when I was single, not for a family.


2006 was 7 years ago... why haven't you saved any money since then and took out an equity loan? Sounds like you have a spending problem.

If you got laid off with only 5,000 cash you would be insolvent in a matter of weeks. That's not a good way to live... I wouldn't be able to sleep at night.

How old are you, where are you located, what's your house hold income, and do you have any other major bills?

What sucks is you owe $141k and if the house sells for $120k, I think you eat ~7% of that too, so you're looking at owing ~$29.5k. Use a 401k calculator (http://www.calcxml.com/do/qua11) to determine the penalty, but let's just guess 25% for simple numbers. You will need to take out almost $40k from your 401k to pay $30k.

I feel bad for your situation because I know you guys must feel like you really need out of that house and really need space for the baby. You just don't want to make a decision now because you feel like you really need it, then a couple years later wish you'd have tried to stick it out a little longer...

Much like your initial condo purchase or second mortgage you took. Why did you take the second mortgage? Did you feel you needed it for something at the time?


You are not setup to retire at all right now. If you can buckle down and live in the condo, that's your best decision. I know you want out, but it's short term gratification that you will regret.

utorth said:   I bought the condo in 2006 when I wasn't married and living well within my means. It was at the very tail end of the housing boom and the market values dropped, so I got screwed. I was paying rent and trying to be fiscally responsible with my money, so decided to buy a place on my own because I had money saved up. A few years later I met my now wife and she moved in because she was renting, and then we had a child. Now we are trying to get out of the bad timing condo-buy on my part to get a house. It really irritates me when people assume without all the facts, and to your credit Al3xK, you did say "based on the info you had", which is fine.

We want out now because the market has improved immensely and feel it's our doorway out, as the condo was meant for me when I was single, not for a family.


Have you considered your wife purchasing a new house and defaulting on your condo? Short sale, cash for keys, etc... Can you rent it out and come close to breaking even? You can count 75% of your rental costs toward income to qualify for a new home and as long as you have a rental agreement in place at closing i believe they'll take that.

At 140k in your 401k you're talking about taking out just over 1/4 and at what most consider mid-life. Have you really considered the tax implications and the true costs of paying it back AND losing that compound interest? You asked for opinions and in mine this has all the makings of a disaster. Tough it out for another year or two when you can break even on your condo and use that newly saved downpayment on the new place.

You are underwater on your existing home, you have meager savings and an underfunded retirement. If you are asking for financial advice, you should stay in the condo.

Al3xK said:   How old are you, where are you located, what's your house hold income, and do you have any other major bills?

What sucks is you owe $141k and if the house sells for $120k, I think you eat ~7% of that too, so you're looking at owing ~$29.5k. Use a 401k calculator (http://www.calcxml.com/do/qua11) to determine the penalty, but let's just guess 25% for simple numbers. You will need to take out almost $40k from your 401k to pay $30k.

I feel bad for your situation because I know you guys must feel like you really need out of that house and really need space for the baby. You just don't want to make a decision now because you feel like you really need it, then a couple years later wish you'd have tried to stick it out a little longer...

You are not setup to retire at all right now. If you can buckle down and live in the condo, that's your best decision. I know you want out, but it's short term gratification that you will regret.


Thank you, this is what I needed to hear.

Ma171aC said: Ma171aC;17667782]


*To clarify: I'm jsolomonic, dont even know why i have 2 accounts and why my browser logged me in as that one.


Oh, I'm sure that has nothing to do with creating an Alt-ID for a sensitive new thread...

utorth said:   I bought the condo in 2006 when I wasn't married and living well within my means. It was at the very tail end of the housing boom and the market values dropped, so I got screwed. I was paying rent and trying to be fiscally responsible with my money, so decided to buy a place on my own because I had money saved up. A few years later I met my now wife and she moved in because she was renting, and then we had a child. Now we are trying to get out of the bad timing condo-buy on my part to get a house. It really irritates me when people assume without all the facts, and to your credit Al3xK, you did say "based on the info you had", which is fine.

We want out now because the market has improved immensely and feel it's our doorway out, as the condo was meant for me when I was single, not for a family.




What happened to your wife's income and saved rent?

brettdoyle said:   babies don't take a lot of space.

You don't have kids, am I right?

brettdoyle said:   Live in the condo for a few years and save up money... babies don't take a lot of space. You can't afford to buy a new place... you don't have a down payment saved up. Raiding your retirement is a terrible option.

Yeah. I get the feeling you can't afford your condo. You sure can't afford to spend more.

sauceisboss said:   brettdoyle said:   babies don't take a lot of space.

You don't have kids, am I right?


Shortly before our daughter was born, my ex wife and I realized that, even unborn, she took up 1/3 of our house.

If you can buy the house without 401k funds.... buy the house and rent the condo to avoid default and hopefully cover the condo expenses.

Ma171aC said:   tennis8363 said:   ...another thing to keep in mind. Some companies won't let you borrow against their contributions, only your direct contributions. Add the tax hit and it doesn't make sense to kill the tiny 401K you have.
Maybe this guy is 50 and has 500k in his retirement fund.. still makes it a bad idea but atleast its not completely destroying his 401k.

How much more is the new place in regards to the old? You'll have to repay your 401k right, can you afford the increased mortgage and that extra percentage to your retirement account?



*To clarify: I'm jsolomonic, dont even know why i have 2 accounts and why my browser logged me in as that one.


Do you have a smart child, or a witty one, with smart friends?

utorth said:   We'll probably sell for ~120k.

As for the response from jsolomonic, You don't need to understand our reasoning is the great part for you. I'm asking if anyone has suggestions because I don't want to pay it with my 401k, but to get out of the condo I don't know how without doing that. If you aren't going to be helpful please keep your opinionated rudeness to yourself.


I think if a person posting a thread gets enough red, the thread should auto-lock.

This thread is a high candidate for one. Wasting internet bandwidth and valuable FWF space.

kenmoreland said:   Ma171aC said:   tennis8363 said:   ...another thing to keep in mind. Some companies won't let you borrow against their contributions, only your direct contributions. Add the tax hit and it doesn't make sense to kill the tiny 401K you have.
Maybe this guy is 50 and has 500k in his retirement fund.. still makes it a bad idea but atleast its not completely destroying his 401k.

How much more is the new place in regards to the old? You'll have to repay your 401k right, can you afford the increased mortgage and that extra percentage to your retirement account?



*To clarify: I'm jsolomonic, dont even know why i have 2 accounts and why my browser logged me in as that one.


Do you have a smart child, or a witty one, with smart friends?


I have neither, I've chosen not to contribute by reproducing. Most would say I'm doing the world a favor by making that decision.

Reluctantly, I borrowed against my 401k for my son's college costs. I see these advantages: 1) the interest rate is low, 3.25%; 2) the interest goes back to me (though at 3.25% I'm obviously missing the opportunity cost of stock/mutual fund gains); 3) the term is 5 years so payments are manageable and the payoff date is within sight; 4) payment comes out of my paycheck so I don't really feel or see it; 5) I can always pay off this loan easily if I come into some unexpected cash in the future. Bottom line is, its not ideal to borrow against your 401k, but its not the end of the world.



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