More First-Time Home Buyers Using Retirement Money for Down Payment

Blog posted On August 21, 2018

As more Millennials start to enter the housing market as first-time home buyers, an alarming trend has emerged.  According to a recent Bank of the West survey of 600 homeowners ages 21-34 from, one in three took out loans against their retirement account to pay for their down payment.  Saving for a down payment is one of the most commonly reported obstacles to homeownership.  In fact, almost 70% of renters consider it the greatest barrier to homeownership.  However, borrowing against or withdrawing savings from a retirement account could set the home buyer up for long-term financial consequences.

If a home buyer does not have enough saved for the down payment on a home, they are allowed to pull money from a 401(k) or an IRA.  They are not allowed to withdraw from future social security payments for this purpose.  With the uncertainty surrounding social security and the retirement age continuing to trend upward, the 401(k) investment will be a critical component of Millennials’ financial security when they retire.  Thus, if the home buyer is not financially solvent enough to buy a house now, it’s not the best time to jeopardize future retirement funds.  According to the National Association of Realtors (NAR), only 2% of first-time home buyers used financial assistance like a down payment program. 

Down Payment Resource reports that are over 2,000 down payment assistance programs nationwide.  Down payment assistance is available in the forms of grants, loans, and tax credits.  Most down payment assistance grants will not have to be repaid and some down payment assistance loans can be factored into the monthly mortgage payment.  Down payment assistance programs vary from region to region based on state and local regulations.  There are numerous down payment assistance programs designed specifically for first-time home buyers.

Before you withdraw money from your retirement account consider a down payment assistance program, especially if you are a first-time home buyer.  Withdrawing or borrowing against retirement accounts could be the only choice in certain financial circumstances.  Most financial experts agree that buying a home is not one of them.  For eager first-time home buyers looking to buy a home, without having the down payment saved, it is best to consult a mortgage professional or housing counselor.  Buying a home is the first step most Americans take toward building wealth and making homeownership accessible benefits the housing market and the greater national economy. 

Sources: CNBC, Down Payment Resource, HousingWire, The Mortgage Reports