Should I withdraw money from my 401(k) to pay off a loan, so I can proceed with obtaining a mortgage?

I was told a week prior to our scheduled closing on our new home that we need to get our DTI% down 6%. In order to do this, we would need to pay off our car loan of $12,700. (The resale of the car is approximately $9,000) The only way we could do this would be to take that amount from my 401(k), on top of the amount we are already liquidating for the down payment. Is this an advisable strategy? It is either this option or we will risk losing out on the new house.

Debt, 401(k), Real Estate
Answers
Sort By:
Most Helpful
December 2016
100% of people found this answer helpful

Unfortunately, it sounds like the house you are looking at buying is a bit outside your range of affordability. While technically you could withdrawal money from your 401(k) or borrow against it, you should not in this scenario. I would recommend that you continue to keep your lifestyle at a modest level until you can afford a healthy down payment for your home, without sacrificing your emergency fund. Too many people enter a situation like yours because their emotional attachment to a home drives them to purchase too much house too quickly and it can put unneeded strains on them in the future, such as the need to replace a furnace, or some other large home expense. Save yourself the hassle and keep renting so you can pay down debt and establish an emergency fund with 6-12 months of expenses. I promise you will thank yourself in 10-15 years.

December 2016
December 2016
December 2016
June 2017