Profile picture for user288020

i'm early retired due to disability, is it better of me to rent or use my 401k to buy?.


i am on ssdi. i've read condo fees and taxes can be less than rent. Is it worth 
spending my 401k savings this way? can i get a loan if i am not working but have a 
large % available in my 401k savings,could be entire amount if i want to spend my entire 401K,.any advice on who to ask these questions to and what i should consider? City has new building of condo's down town, with elevators
and laundry. City help finance building, to revitalize downtown. In financing
 agreement 11% of units have to be sold to the disabled.I qualify but it will be
 a stretch, no new furniture for new condo. nail biting decision.Hopefully lower monthly  cost than rent? current rent is 30% of ssdi amount..
  • January 10 2013 - Green Bay
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Answers (7)

Best Answer

Profile picture for Blue Nile
Zillow's research department has written some helpful blogs on the subject which I recommend reading:

Rent vs. Buy: What the Standard Indices Aren't Telling You

Should You Buy or Rent? Depends on How Long You Want to Stay and Where You Want to Live (Of Course)

Rent vs. Buy – Breakeven Horizon Analysis Methodology Updated

They also have published some helpful comparison numbers and number of years for "break even" in various parts of the country.

But ultimately, you will need to do your own calculations.

Just remember, if you buy, you are responsible for your repairs, unlike renting.  And if you ever need "assisted living", you will need to sell to be able to move to such a facility, and selling you will pay the transaction costs, including the Realtor fees.
  • January 10 2013
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In addition to speaking with mortgage professionals who will help you decide if purchasing is affordable for you.  Speaking with a tax account or financial planner would also be a wise decision.  I believe if you utilize your 401K for a primary residence their may not be a penalty - definitely check with the holder of your retirement accounts.  Pasadenan provided you with some great information.  Only you can decide if the money you spend on rent versus the money you spend on owning and the associated costs and deductions is worth the investment. 

Good luck on your decision.

  • January 12 2013
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I would call at least two mortgage professionals in your area and go talk with them.  They will be able to answer this question the best.
  • January 11 2013
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Profile picture for Blue Nile
If it were me, I would do an Excel spreadsheet both ways (continuing to rent, and purchase of the unit being contemplated), and then apply appropriate inflation factors on both.

The advantage of purchasing is locking in a good mortgage rate now.  But that doesn't lock in your Condo association fees nor your maintenance expenses nor property taxes.  And depending on the specific disability, some of the common maintenance that people do themselves may have to be done by others at a cost.

Also don't forget that if you take all (or most) of your 401k early, you will have a larger tax burden on that money then if you spread it out over a number of years (such as taking only the minimum required by law).  There are ways that housing can be "in the 401k", but it gets a bit complicated and would need to be done by someone that specializes in that.  In any case, don't forget to include tax impacts in your cost comparison.

You also may want to check on the availability and cost of transitional living opportunities, as some that have assisted living on site make it harder to get into when you already have additional needs.  For many assisted living facilities, there are government programs for those on Social Security and Disability... but they leave very little cash-flow for other expenses, and you essentially have to have "nothing" to qualify for those.  Not to mention, some people consider those almost the equivalent of a "prison".

You didn't mention if your existing rental is sufficiently "accessible" or not.  Nor did you mention the probability of the landlord increasing the rates or selling off the property.  Nor did you mention and family or friends you have in the area that may impact your decision.
  • January 11 2013
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Profile picture for user288020
yes this is a problem not knowing the future and being cleaned of funds with possibly /probably long life ahead of me betting on securing current housing then neglecting not only possible assisted living situation but adaptive equipment & meds. expensive meds and they are getting more expensive. unfortunately disability affects quality not quantity of life.
  • January 11 2013
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Profile picture for hpvanc
I'm not sure how much money you are talking about.  It may be worth paying a Financial Advisor to review your situation with you, and help you make a decision on how best to balance the use of your 401K savings with your housing needs.  They hopefully will be able to show you some "what if" scenarios. 
  • January 11 2013
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Profile picture for Ofe Polack
I suggest that you meet with at least two mortgage brokers who can advise you on how to best go about it.  The best of luck in whatever you do.  Are you working with a buyer agent? 
  • January 11 2013
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