Tapping a Retirement Account Can Help or Hinder Home Buyer
Home buyer Duane Rollins had secured a 30-year, fixed-rate mortgage last May at a decent 6.75 percent interest rate so he could buy a small, one-bedroom house in Kensington. Nonetheless, he still needed several thousand dollars to cover his closing costs, even though he wasn't sure exactly how much.</br></br>What Rollins, 35, a facilities manager for a nonprofit group in the District, did know was where to turn for the cash: a retirement fund he had set up with a previous employer.</br></br>"I got close to $10,000 because I couldn't get a hard figure on my closing costs," he said. But when he ended up only needing $2,600 to settle the loan, he decided to use the rest of the money to help pay the cost of expanding the house, a former photographer's studio, to 1,700 square feet of living space.</br></br>Rollins is one of a growing number of consumers in the Washington area and across the country who are using a portion of their retirement nest eggs toward the purchase of a house. Whether taken as a loan or pledged as collateral in a mortgage application, such funds have become an attractive source of money for down payments, settlements, moving and decorating costs, and paying commissions to real estate agents, lenders and financial planners said.</br></br>Loans from 401(k) and other employee-directed retirement savings plans lately have blossomed in tandem with the stock market's growth, which boosted earnings among the mutual funds that launched many retirement plans, even if the bottom line for many savers has diminished since mid-July. Retirement savings accounts, whether 401(k), profit-sharing or some combination plan, have earned an average compounded annual return of 11 percent since 1983, said David Wray, president of Profit Sharing/401(k) Council of America in Chicago.