Tapping into savings for first time home purchase

[bikERdoc]

Hi folks,

 

First time home buyer here. Currently under contract, bout to become poor. I'm a 2nd year attending. The fiance and I have been renting for 2 years and felt ready to make the plunge. We live in a fairly high COLA, and the best loan we could find still required a decent down payment on a physician loan.

As of now I am able to cover the down payment with cash savings over the past 2 years, but just barely.  So that brings up the question of whether I should tap into possible savings/retirement accounts.

I currently have about 100k which is split between a taxable brokerage, Roth IRA, and company 401k. Right now I'm considering putting aside about 10k for additional expenses after moving in. I know I can take out 10k from my Roth without penalty. I've heard through conversation that I can take out money from my 401k and "pay myself back interest." I also have my taxable brokerage that I could sell stocks from and pay long term capital gains on.

Ideally I wouldn't be touching any of these accounts. The reality of living in a high COLA means that I may have to unfortunately. My questions is: which account type would be best to take from in order to complete the house purchase?

Thanks in advance.

[PhysicianOnFIRE]

If it were me, I would use taxable money if necessary.

There are limits on contributing Roth money, and I would let that balance remain as large as possible for as long as possible. There are options for taking loans from a 401(k), but if you've got the money readily available in a taxable account, why not use that?

Be sure you have "Specific ID" as your cost basis (that's what Vanguard calls it), so you can sell the lots with the least amount of gains. The only tax you owe will be on the gains. It's kinda like you set aside cash for this, but instead of leaving it as cash, you invested it. If you owe significant taxes, you've come out ahead as compared to holding cash, even after paying the taxes.

Cheers!
-PoF

[Miss Bonnie MD]

What's the rush. Defer and save more. Sounds like you can't actually afford it.

[pulmdoc]

The taxable account is fine to withdraw, home buying would certainly be something I'd consider an acceptable use of funds for an attending. On the other hand, what makes it necessary to buy a home now instead of, say, in 6 months? In 6 months you should be able to save some more.

[Craigy]

How much cash float do you need?  Just your monthly expenses?  Have you figured closing costs as well?

When we bought our house we put 20% down, which wiped out virtually all of our cash.  I carried a credit card balance for the only time in my life for a couple months but it worked out alright.  

Seriously, if you have good income, a credit card can give you five, ten grand of float or more for a month or two.  Interest is peanuts.  Easier than dealing with a 401k loan, etc.  But if you can just cash in some losses in a taxable account, I'd do that first.

 

[Craigy]

Being under contract already, also don't be in a rush to close.  Use all of your time to do your inspections, get seller out, etc.  When you do your walkthrough and the seller still has his ************************ inside, push back the closing.  Don't do some sort of leaseback deal, just let seller live there longer and let him pay the interest, insurance, property tax, etc.

[retinadoc]

Miss Bonnie MD wrote:

What’s the rush. Defer and save more. Sounds like you can’t actually afford it.

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But he has money in a taxable account. He just decided to invest it instead of parking it in a savings account.

I wouldn't touch the retirement accounts, but sell off assets in the taxable account as needed. Waiting wouldn't hurt either, but depending on the size of your taxable account, then it sounds doable.

[childay]

Agree with not touching the 401k or roth for sure.

[RogueDadMD]

Guys (and gals) -- he's basically talking about being house poor for a little bit.

That is definitely not WCI/MMM kosher-sanctioned advice, however in some circumstances it's not an awful idea.  Depending on the local real estate market, interest rates, job status, and regular cash flow, purchasing now and replenishing later is okay.  It makes most WCI people squeamish, including me, and I would not raid a retirement account unless there is some desperate circumstance.

If you will have the cash replenished in a few months and have no urgent other purchases and really have good reason not to wait 3-6 months then do it (and have some reserve cash such as a true emergency fund) it's not crazy, just be sure you go in recognizing you are going to want to buy things the first few months you won't actually be able to afford.

[Hatton]

Is the taxable account enough for the down payment? If so use this money and pay taxes.  I would not buy the house if it meant raiding Roth or 401 k.  You can thank me in 30 years.

[Kamban]

Agree with hatton1. No house is worth taking money out of a Roth or 401K at the early stage of investment and miss out on compounding.

Use only your taxable accounts.

[Zaphod]

Taxable, thats part of what its for, or alternatively as craigy mentioned you could use credit and cash flow it. However, if its just moving stuff delay whatever is not an immediate need.

[bikERdoc]

Thanks all for the replies. Kind of confirmed what I was already thinking in terms of taking money out. Just to clarify, I already have the cash reserve in checking to cover the down payment and closing costs. The question really pertained to taking out about 10k to cushion the move a bit and allow for some new furniture purchases. Going poor for a few months is not ideal, but I'm not too worried about building cash reserves back up fairly quickly. Flow is good these days.

[Zaphod]

bikERdoc wrote:

Thanks all for the replies. Kind of confirmed what I was already thinking in terms of taking money out. Just to clarify, I already have the cash reserve in checking to cover the down payment and closing costs. The question really pertained to taking out about 10k to cushion the move a bit and allow for some new furniture purchases. Going poor for a few months is not ideal, but I’m not too worried about building cash reserves back up fairly quickly. Flow is good these days.

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then just wait a month or two for furniture. i get the desire, but its no big deal and not worth it long term...unless of course your spouse will make a stink and it will be unbearable, but I bet their pretty reasonable.

I have two couch sets in our new, "fancy" house and they were both bought off nurses, one in residency and one in practice. One looks ok but is awful to sit on. Furniture is on the list someday, but I bet inside furniture comes after pool/patio furniture. Slum it for a month or two.

[bikERdoc]

Miss Bonnie MD wrote:

What’s the rush. Defer and save more. Sounds like you can’t actually afford it.

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I love how folks on here can deduce everything about one's financial situation and give them unsolicited advice based on no actual figures or facts. Thanks tho