Profile picture for ShellySC

Pulling $ out of Roth/IRA for downpayment?

Hi, My husband and I are in the process of selling our current home and buying a short sale.  We would rather not pay PMI but rather put 20% down payment on the SS.  We are both 33 years old and have a 10% down payment in savings.  Should/Could we each pull $10k out of our Roth/IRA to make up for the other 10%?  My husbands name is not on our current mortgage but is on the deed - so would he qualify as a "new home owner"?  Also, can I take $10k out in my sons name (even though he is a child)? My main goal is to reduce our payments...to ensure we can carry the first house until it sells.
I would like any thoughts or opinions or even past experience information on this sort of situation... Thanks in advance!
  • November 04 2011 - Myrtle Beach
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Answers (2)

Profile picture for JohnHeyer
You can take money out of an IRA at any time, but will be hit with applicable taxes and a 10% penalty in most cases.  That sometimes is worth it if you're looking to beef up your down payment and avoid the costs of mortgage insurance and higher interest rates.  You'd have to really sit down and crunch the numbers to see if it's worth it.  A better idea may be just get the $10,000 from a separate loan from a friend or relative, and leave the IRA for retirement or emergency hardships.

You can avoid the 10% penalty if you're a "first time buyer", which the IRS defines as "Not owning a home in the last 24 months".  I would think that since you're both on the deed, neither of you qualify for that.  As for your son, he would qualify but if he's under 18, I highly doubt you can raid his IRA to finance your home.  And, as wetdawgs mentions, you'd be screwing him over long-term.  

With a Roth IRA, you need to have the account open 5 years to avoid the 10% penalty, and unlike a Traditional IRA, you don't need to pay taxes.  So if you have a Roth and are a "first time buyer", it's a pretty sweet deal.

That's at least my understanding.  I'm not an accountant, and as with all free advice on the internet, you get what you pay for :p
  • December 07 2012
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Profile picture for wetdawgs
As your husband is on the deed, he is currently a home owner.  Here's a link to a useful article on the subject.

Please be aware that if you do it in your son's name, this is a lifetime limit of $10,000.  So making a choice for him today means he doesn't have that choice when he reaches a similar decision point in adulthood (if the rules remain the same).  
  • November 04 2011
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