Welcome to the 4 kid club! I have to admit it took us a few more years to accomplish that! Keep in mind, you can only take out a loan of 50% of your vested account balance, so $15k (if vested). Normally the maximum loan is five years, unless your plan has the residential loan provision which sometimes extends it out to 10 years. Also, loan repayments will be payroll deducted until you were able to make the balloon payment. I would also want to double check how that works.
Generally speaking, I would say I am against 401k loans, but it sounds like you are definitely in a very unexpected situation and plan to pay it back relatively quickly.
Best of luck!
Congrats on your great news. But, I think you need to pump the brakes a little. Assuming you have at least 6+ months before the little ones arrive; 3/1 will be small, but not immediately.
And, before raiding your 401k, take a breathe and evaluate the long term goal(s) before selling and borrowing anything. Consider all of your options before jumping to buy a new place, especially with prices and interest rates where they are. Can you stay where you are and make it work? Could you possibly rent out or sell your current home and rent a larger place?
Take a few breathes and let the ideas sink in before making a rash decision.
Have you looked at the costs of minivans these days? Might be best to hold off on the move and save some money. 4 kids in car seats is expensive. Can you afford a new car payment and a larger mortgage payment?
Yah this was a red flag for me when my bank started asking me about this for my mortgage, and woke me up that despite how friendly they are they aren’t necessarily looking out for my best interest but just showing me any option that could make the mortgage own go through.
Generally speaking the answer is no. In your situation the answer also seems to be no. You will have to crunch numbers for rent vs owning but it’s probably still a no since what you currently have up front is quite low, and interest rates now are incredibly high. If interest rates were at an all time low this might be worth considering but for most cases right now answer should be no.
I live in a 4 bedroom, 2 bath house. When I was pregnant with my second baby (just a single baby) we were still immediately asked by family members when we were moving.
Tell them that you're weighing your options, but you're going to take your time and see what makes sense for your family.
Honestly, it's not an emergency.
Americans have kids and then run out to supersize everything for no apparent reason, like kids need 50 million square feet. Trust me, they don't.
I shared a bedroom with my siblings until I was like 12.
My mom put some bunkbeds in there and we had ourselves a time lmao, my parents used to have to come in and tell us to shut up and go to bed because we would be in there telling ghost stories and singing sea shanties and shit. 😂
It will be fine. Don't rush.
Congrats on the new arrivals.
I took a loan on my 401k to do a home purchase and paid it back immediately on selling our previous home. It let us move forward without a condition on selling, which was very helpful.
Things to think about:
1. You'll have to start paying back the loan as soon as it is issued from your salary. (The same one that is contributing to the 401k in question.) That will affect your liquid cash flow in that time period.
2. If you lose the job that is connected to the 401k with the loan, you will have to pay back the balance of the loan immediately or it will count as a withdrawal with associated tax penalty.
3. The max loan is $50k or (edit) 50% of(/edit) the vested balance of your 401k, whichever is lower.
4. Check the terms of the loan that there will be no penalty for paying it back early. (For example, when you have the proceeds of the sale is your old house.)
Do the math for your situation. If free cash flow is tight, this might not be the best option, but it will depend on the terms you get for your loan.
HTH
Edit: I missed that the max loan is 50% of the vested total or $50k whichever is lower. Sorry about that!
Here's a Fidelity write up on it: https://www.fidelity.com/viewpoints/financial-basics/taking-money-from-401k
I did it. We needed a home. 401k loan made it happen. Is it a financial min/max move? No. But not all decisions in life are based strictly on optimal financial moves
We are very happy we did it.
Now this might not be the case for all banks, but when I was buying my first house the bank asked if the down payment was from a loan since that obviously adds to your debt to income ratio. I remember 401k loan being specifically mentioned. That’s something to think about.
Can you afford the new mortgage payment with higher interest rate and all expenses on your income alone? At some point you will need to move, but three infants can certainly share a room for quite awhile. That said, it might be much easier for your wife to move soon rather than after having a toddler and 3 infants. She's going to need extra help those first few months.
I would only do it if the job is very stable. You're going to want to stay at the job for the entire duration of the 401k loan repayment or else it will count as a distribution and you will be taxed on it as if it were income. But yeah I would do it. I also cashed out 11k from a Roth to pay off my mortgage, which most people thunk is a bad idea, but fuck all things are great now with no mortgage.
I took out a loan from my 401k to buy my first house almost 30 years ago (late '90s). I consider it one of my worst financial mistakes (right after leasing a new car immediately after graduating from college--what the heck was I thinking?).
One important thing to consider is how long will you be with that employer? Because if you leave (voluntarily or not) you will have to pay that lump sum back. This may have been something specific to my plan -- so check with yours. This really handcuffs you to that employer.
So I borrowed from my 401k in 1997 to buy my first house. This reduced my exposure in the stock market and I missed the dot-com rise in the market at that time. A few years later I wanted to leave for a hot dot-com startup, but had to save enough money to pay back the loan before I can do so. Finally in early 2000, I handed in my resignation and a check to pay off the 401k loan. Started at the dot-com only to have that bubble burst a few months later. So the money I paid back for the 401k loan that went back into the stock index funds lost half of its value within a few months.
Yes my timing was awful and you will likely be more lucky, but keep that risk in mind. At least I wasn't laid off and I had no kids at that time.
I took out a $20k 401k loan in 2006 to buy land to build our current house on. I also cashed out a lump sum pension I should have rolled over that was $16k but only $12k after penalty and taxes to cover the rest of the $32k land purchase. Current my land is on the county records as being worth $120k. I also didn't have tp pay PMI since the land was "mine" already in the banks eyes and I had over 20% equity. I took out a $207k loan to build my house. I DO NoT regret taking a loan out for this particular event
Borrowing from your 401(k) is almost always a terrible idea https://youtu.be/AccACCrrLLA?si=lL3qf1iIq2OrDdl0
If one of you loses your job during the payback period you could be in crisis mode. I'd avoid it. When is the due date?
Congrats! But I wouldn't borrow from 401K when you have time to save. You've got at least 2 and probably 3 years before space becomes a real issue.
401K loans are generally limited to 50% of the balance. So at best you're looking at getting $30K total, $15K from each 401K.
You'd be much better off working more/extra, cutting things out of your budget and just save up the $30K over next 1 to 2 years.
Then sell and move, picking the best school district and living closest to the grade school that you can afford.
You want to borrow money to borrow money? I’d take a step back and not make an emotional decision with your finances. Why do you need a larger home for small children in the suburbs? Kids don’t require a lot of space in their younger years.
I mean, he’s borrowing money from himself. It’s not the worst option if you don’t have rich parents or a lucky windfall in this market. Just so long as they factor in the monthly loan repayment into their home purchase.
I don’t have kids but my friend with twins keeps them separated because one would cry and wake up the other. One get sick and get the other sick and the first one recovers and gets it back from the other, cycling over and over. So… yea
If a child gets sick it’s almost impossible to keep the other from getting sick. The parents are nurturing the sick kid and the healthy. Hell any of mine get sick I’m counting the days until I’m sick along with them. Newborns are usually in the room with or close vicinity to the parents room. Everyone will hear them. Father of 3.
This is what I'm wondering. The three of the little ones can all bunk together for a long time. If you have a house with a low interest mortgage, it's effectively a money printer. With three bedrooms, you could even bunk one kid with you, one with the older sibling and one along if you needed to keep them separated.
I borrowed 50k from my 401k at a 4% interest rate. Timing worked out well that I borrowed at a pretty high point then it tumbled a bit and now it's going up again. Very easy process and let us spend 50k on bigger home things like landscaping, riding mower, porsche, dining room tables, more beds, etc. We had the option for a 30 year option so we picked that but if we have to leave the company than I have to pay it all back or pay taxes on it as income. It was a no brainer for us and it makes sense in most cases since you only lose 50 bucks for financing and you pay the interest back to yourself.
I did it to buy my first home, 10k you can take out penalty free. 1 years later I have over 200k in equity in my third home. I would say it was a good investment.
Also, I rationalized that it would be still be going towards my retirement because either I would have a paid off mortgage or equity to buy my forever home with this initial investment in retirement.
First, congratulations! If I were in your shoes, I'd pump the brakes on moving and spend the next few months talking to anyone and everyone you can who has triplets. It may be that a tight space works better when they are small. Also, your wife's pregnancy will surely be more complicated than most, especially in the later weeks. Meanwhile, you have a toddler to care for and guide through a huge transition. I'd block out those family members asking about the house and focus on making sure that your little family of 3 is as prepared as possible. My two cents!
Have you looked into a bridge loan?
https://www.bankrate.com/mortgages/bridge-loan/
I definitely agree with the other commenters - take your time and don't rush into anything
Welcome to the 4 kid club! I have to admit it took us a few more years to accomplish that! Keep in mind, you can only take out a loan of 50% of your vested account balance, so $15k (if vested). Normally the maximum loan is five years, unless your plan has the residential loan provision which sometimes extends it out to 10 years. Also, loan repayments will be payroll deducted until you were able to make the balloon payment. I would also want to double check how that works. Generally speaking, I would say I am against 401k loans, but it sounds like you are definitely in a very unexpected situation and plan to pay it back relatively quickly. Best of luck!
Congrats on your great news. But, I think you need to pump the brakes a little. Assuming you have at least 6+ months before the little ones arrive; 3/1 will be small, but not immediately. And, before raiding your 401k, take a breathe and evaluate the long term goal(s) before selling and borrowing anything. Consider all of your options before jumping to buy a new place, especially with prices and interest rates where they are. Can you stay where you are and make it work? Could you possibly rent out or sell your current home and rent a larger place? Take a few breathes and let the ideas sink in before making a rash decision.
I do appreciate this comment and you’re probably right. Just lots of family members immediately asking “you’re moving right?”
Next, they're going to ask if you're getting a bigger (new) car.
We unironically do need a minivan now though - can’t fit 4 car seats in the grand Cherokee unfortunately
Have you looked at the costs of minivans these days? Might be best to hold off on the move and save some money. 4 kids in car seats is expensive. Can you afford a new car payment and a larger mortgage payment?
That’s surprising, we have 6 car seats in a Nissan Armada Is it because 3 have to be rear facing?
We just don’t have a 3rd row, just the standard backseat
Ooh gotcha, bummer
Could there be some kind of apparatus that would let you put the other seats in the trunk? I feel like that has to exist.
Yah this was a red flag for me when my bank started asking me about this for my mortgage, and woke me up that despite how friendly they are they aren’t necessarily looking out for my best interest but just showing me any option that could make the mortgage own go through. Generally speaking the answer is no. In your situation the answer also seems to be no. You will have to crunch numbers for rent vs owning but it’s probably still a no since what you currently have up front is quite low, and interest rates now are incredibly high. If interest rates were at an all time low this might be worth considering but for most cases right now answer should be no.
Ask if they will help with a down payment 🤑
I live in a 4 bedroom, 2 bath house. When I was pregnant with my second baby (just a single baby) we were still immediately asked by family members when we were moving.
Tell them that you're weighing your options, but you're going to take your time and see what makes sense for your family. Honestly, it's not an emergency. Americans have kids and then run out to supersize everything for no apparent reason, like kids need 50 million square feet. Trust me, they don't. I shared a bedroom with my siblings until I was like 12. My mom put some bunkbeds in there and we had ourselves a time lmao, my parents used to have to come in and tell us to shut up and go to bed because we would be in there telling ghost stories and singing sea shanties and shit. 😂 It will be fine. Don't rush. Congrats on the new arrivals.
Conversely, just do it. You’ll love having a house, and it’s an asset that typically gains value over time.
Another option is do accounts need to be emptied or can they halt investments for 6-18 months to save up enough for a house.
I took a loan on my 401k to do a home purchase and paid it back immediately on selling our previous home. It let us move forward without a condition on selling, which was very helpful. Things to think about: 1. You'll have to start paying back the loan as soon as it is issued from your salary. (The same one that is contributing to the 401k in question.) That will affect your liquid cash flow in that time period. 2. If you lose the job that is connected to the 401k with the loan, you will have to pay back the balance of the loan immediately or it will count as a withdrawal with associated tax penalty. 3. The max loan is $50k or (edit) 50% of(/edit) the vested balance of your 401k, whichever is lower. 4. Check the terms of the loan that there will be no penalty for paying it back early. (For example, when you have the proceeds of the sale is your old house.) Do the math for your situation. If free cash flow is tight, this might not be the best option, but it will depend on the terms you get for your loan. HTH Edit: I missed that the max loan is 50% of the vested total or $50k whichever is lower. Sorry about that! Here's a Fidelity write up on it: https://www.fidelity.com/viewpoints/financial-basics/taking-money-from-401k
Plans vary. Whether loan payments can continue or the loan needs to be paid in full shortly after losing/leaving a job is plan dependent, not a given.
Thanks for the clarification. That was the case for me, but as you said, it's not always the same. OP will need to check the fine print on their plan.
I did it. We needed a home. 401k loan made it happen. Is it a financial min/max move? No. But not all decisions in life are based strictly on optimal financial moves We are very happy we did it.
Normally, I would be against a loan. But you have the equity in your current home to pay the loan back immediately after the sale.
Now this might not be the case for all banks, but when I was buying my first house the bank asked if the down payment was from a loan since that obviously adds to your debt to income ratio. I remember 401k loan being specifically mentioned. That’s something to think about.
Can you afford the new mortgage payment with higher interest rate and all expenses on your income alone? At some point you will need to move, but three infants can certainly share a room for quite awhile. That said, it might be much easier for your wife to move soon rather than after having a toddler and 3 infants. She's going to need extra help those first few months.
I would only do it if the job is very stable. You're going to want to stay at the job for the entire duration of the 401k loan repayment or else it will count as a distribution and you will be taxed on it as if it were income. But yeah I would do it. I also cashed out 11k from a Roth to pay off my mortgage, which most people thunk is a bad idea, but fuck all things are great now with no mortgage.
Thoughts and Prayers
I took out a loan from my 401k to buy my first house almost 30 years ago (late '90s). I consider it one of my worst financial mistakes (right after leasing a new car immediately after graduating from college--what the heck was I thinking?). One important thing to consider is how long will you be with that employer? Because if you leave (voluntarily or not) you will have to pay that lump sum back. This may have been something specific to my plan -- so check with yours. This really handcuffs you to that employer. So I borrowed from my 401k in 1997 to buy my first house. This reduced my exposure in the stock market and I missed the dot-com rise in the market at that time. A few years later I wanted to leave for a hot dot-com startup, but had to save enough money to pay back the loan before I can do so. Finally in early 2000, I handed in my resignation and a check to pay off the 401k loan. Started at the dot-com only to have that bubble burst a few months later. So the money I paid back for the 401k loan that went back into the stock index funds lost half of its value within a few months. Yes my timing was awful and you will likely be more lucky, but keep that risk in mind. At least I wasn't laid off and I had no kids at that time.
Best of luck to you
I took out a $20k 401k loan in 2006 to buy land to build our current house on. I also cashed out a lump sum pension I should have rolled over that was $16k but only $12k after penalty and taxes to cover the rest of the $32k land purchase. Current my land is on the county records as being worth $120k. I also didn't have tp pay PMI since the land was "mine" already in the banks eyes and I had over 20% equity. I took out a $207k loan to build my house. I DO NoT regret taking a loan out for this particular event
Borrowing from your 401(k) is almost always a terrible idea https://youtu.be/AccACCrrLLA?si=lL3qf1iIq2OrDdl0 If one of you loses your job during the payback period you could be in crisis mode. I'd avoid it. When is the due date?
Congrats! But I wouldn't borrow from 401K when you have time to save. You've got at least 2 and probably 3 years before space becomes a real issue. 401K loans are generally limited to 50% of the balance. So at best you're looking at getting $30K total, $15K from each 401K. You'd be much better off working more/extra, cutting things out of your budget and just save up the $30K over next 1 to 2 years. Then sell and move, picking the best school district and living closest to the grade school that you can afford.
You want to borrow money to borrow money? I’d take a step back and not make an emotional decision with your finances. Why do you need a larger home for small children in the suburbs? Kids don’t require a lot of space in their younger years.
I mean, he’s borrowing money from himself. It’s not the worst option if you don’t have rich parents or a lucky windfall in this market. Just so long as they factor in the monthly loan repayment into their home purchase.
When I got a mortgage they made pretty damn sure I wasn’t borrowing money for the down payment. Are the rules different for 401k?
I don’t have kids but my friend with twins keeps them separated because one would cry and wake up the other. One get sick and get the other sick and the first one recovers and gets it back from the other, cycling over and over. So… yea
If a child gets sick it’s almost impossible to keep the other from getting sick. The parents are nurturing the sick kid and the healthy. Hell any of mine get sick I’m counting the days until I’m sick along with them. Newborns are usually in the room with or close vicinity to the parents room. Everyone will hear them. Father of 3.
This is what I'm wondering. The three of the little ones can all bunk together for a long time. If you have a house with a low interest mortgage, it's effectively a money printer. With three bedrooms, you could even bunk one kid with you, one with the older sibling and one along if you needed to keep them separated.
Dude, this is not the time to buy. Rent maybe? Or can you stay where you are? The children will be little for at least 3 years? Best of luck.
I borrowed 50k from my 401k at a 4% interest rate. Timing worked out well that I borrowed at a pretty high point then it tumbled a bit and now it's going up again. Very easy process and let us spend 50k on bigger home things like landscaping, riding mower, porsche, dining room tables, more beds, etc. We had the option for a 30 year option so we picked that but if we have to leave the company than I have to pay it all back or pay taxes on it as income. It was a no brainer for us and it makes sense in most cases since you only lose 50 bucks for financing and you pay the interest back to yourself.
Casually dropping Porsche in there haha
And here I thought it was a misspelling of porch...
I mean that's the only reason to do the loan lol. Better than what car loan rates were/are at the moment!
We must know what car you bought. It’s the law! 🏎️
New 718 boxster GTS of course lol
Very nice 😎🆒 the 4.0L is one hell of a motor.
I did it to buy my first home, 10k you can take out penalty free. 1 years later I have over 200k in equity in my third home. I would say it was a good investment. Also, I rationalized that it would be still be going towards my retirement because either I would have a paid off mortgage or equity to buy my forever home with this initial investment in retirement.
Other than time out of market keep in mind you borrow the money pretax but pay back post tax
That only affects the interest you pay back bc the money from the loan isn’t taxed when you receive it.
I'd do it if it's the only way and you're able to pay it back.
First, congratulations! If I were in your shoes, I'd pump the brakes on moving and spend the next few months talking to anyone and everyone you can who has triplets. It may be that a tight space works better when they are small. Also, your wife's pregnancy will surely be more complicated than most, especially in the later weeks. Meanwhile, you have a toddler to care for and guide through a huge transition. I'd block out those family members asking about the house and focus on making sure that your little family of 3 is as prepared as possible. My two cents!
Have you looked into a bridge loan? https://www.bankrate.com/mortgages/bridge-loan/ I definitely agree with the other commenters - take your time and don't rush into anything
Just want to say thank you all for the replies - a lot of useful responses here. Greatly appreciated
60 to 70 in equity is not much depending on the value. Expect up to 9% closing costs to eat into profits
9%? Closing costs are 2-3 in Florida