SWA 401k/House down payment

[PTinbound]

SWA 401k/House down payment

Here’s a question that hasn’t been asked yet, maybe because it doesn’t really have a heck of a lot to do with interviewing as such, but here goes:

After being in the Army and then the commuters for 7 years, my wife and I still have yet to buy our first home. It’s one of our biggest financial goals. Having said that, I’ve heard that when you change jobs, you can use some or all of your 401k money from the previous job on a down payment for a first home without the usual tax penalties of just “cashing out”. Could someone enlighten me on if that’s true or not? I’ve got about 13K in my current 401k, which I’d love to use as a down payment. I figure if I’m ever blessed enough to make it on the property, I won’t have many problems with enough retirement money. Of course, I could use the VA loan, but I don’t know if that’s always the best way to go.

Secondly, and this is a little more SWA specific, if I don’t use the 401K to buy a house, and I roll it over into the SWA 401K, what are the rules about borrowing against it for use on a down payment? I’ve heard this was also possible, but what are the specifics? Is there a minimum you have to have in the 401K before you can borrow from it, how much of it can you borrow (100%, 50%?), and what would the repayment terms look like, in terms of payment/ length of time to repay?

Lastly, where are a lot of SWA pilots getting mortgages from? Is the SWA FCU pretty good for that, or are there a lot of folks using USAA, etc?

Now back to your regularly scheduled programming: How will SWA get the EMB certified to go to HNL?

 

[CoopDog]

PT,

Somebody based in OAK isn't trying to make you a deal on one of those $500,000 fixer upper's, are they?

Coop

 

[Gulfstream 200]

I have heard of using a ROTH IRA as a down-payment on a first house, no penaltys.

I have never heard this about 401(k)...I thought those were pretty much tied up until retirement without taking huge penalties. I dont think you can even count them as "assets" when getting your mortgage..

but then again, Im sure somebody out here knows more than me...



Good luck with the house, you need them deductions come tax-time!

 

[holdon]

send me a pm, I can answer some of your questions and give you some help


take care

 

[sfomarc]

Dont know about the house but keep the 401k out of Southwest. Although its ok your options are limited. I would roll it over to a traditional IRA that way you can buy stock, mutual funds or whatever you want without being limited to SW's 10 or so choices.

 

[Reelbigfish]

Before you withdraw any money from your 401K remember that the "early money" put into the 401k is "worth" more. The hardest part to build is the initial amount, then when that starts compounding, it becomes easier to make money. The first few years are the worst. Also, any money you pay off with a large downpayment, will cut down your tax deductible expense. In a time like now, with interest rates at all time lows, it might be more financially sound to put a lower down payment down and take the tax deduction because it might be more than the interest you would save.
<p>Generally, you cannot take a penalty-free early distribution from a 401(k) plan for first-time home buyer expenses. You may be able to get a loan from your 401(k) plan for these expenses; it will be tax and penalty free, but you'll have to pay it back.
<p>
If you are able to take money from your 401(k) plan under a "hardship" clause, you may have to suspend making tax-deferred contributions to the plan for a year. That could cost you a bundle if you have a generous employer matching your contributions. Every 401(k) plan is different...talk to your plan administrator.
<p>
Remeber though that if you leave the company before a 401(k) loan is paid off, and you can't afford to pay it back, the IRS will treat it as an early distribution and you'll have to pay tax and a 10 percent penalty on what you owe.
Hope this helps!

 

[SWA/FO]

Don't borrow from your 401K.

Roll your 401K over into an IRA, keep it seperate from SWA. Maybe something you buy stocks, mutual funds with etc..

Check into your VA bennies

You can also do an 80% & 20 % loan to avoid PMI. Those mortgage guys know all the tricks.

never borrow from your 401k, bad very bad

 

[dashtrasher]

Go talk with a CPA. They should be able to advise you on any question you have regarding the best route for your 401K and the downpayment on your home.

 

[buzzfly]

The downside with borrowing from your 401K is double taxation. Your payments on your 401K loan are after tax. These payments are taxed again upon distribution at retirement.

 

[flying@swa]

Go visit

a CFA - Certified Financial Advisor..... much better than a CPA for matters of investing/401ks, IRAs, etc.... if you are an American Express card holder you can see one of their advisors 1 yime @ no cost.

I used the VA for my 1st 2 house purchases.... any way you look at it - a 0 DOWn loan is a great deal and one of the ONLY beenis you have as a non-retired vet. Use it!

Flyin'

 

[Icebergclub]

401k "Loan".....can be a great deal!

PT,
Each 401k program has it's own rules. Here at Atlas, I took out half of my 401k balance for a downpayment on a house. I now pay myself back monthly with interest. I still make my usual 15% contribution each paycheck but now I also pay back my "loan" at 5% interest, the interest is paid back to myself (back into the 401k account).

There were no fee's or penalties for this "loan". The only way to take a tax hit would be to quite your job and not pay back the loan in full. Then your going to take the big tax hit. I have 10 years to pay back the loan only if I stay employed at Atlas. There lies the problem for me!! I'am hoping for that Jan/Feb SWA class date!!!

Not much of a decision though! I'll take the class and the tax hit!

It's a good program to get into your first home. There were also no rules on how you had to use the money. You could draw out up to 50% for any reason and still use the same payback interest and payment terms.......it's really a good deal if you have no other way into a house or if a emergency arises. One note, is that my company did not seem to know anything about the program, I found out everything through the 401k administrator (Fidelity). So you might want to check directly with your admin.

Thats all I know.........

Iceberg

Hello to all the fellow poolies out there!!! Were gett'in closer! To all you junior guys stuck in OAK.....I hope to be there soon! I cant wait to take one of your spots.........Fly safe and happy holidays to everybody.

 

[Dave Benjamin]

Why not VA financing?

PT,
Congrats on making the cut to SWA.
Unless you plan on OAK as a domicile you might want to consider VA financing for your home. Assuming you're elgible which you should be as an Army vet VA offers 100% financing with no PMI. They also offer some very slick refi options like IRRL. I have refi'd twice in the past couple of years and it took less than 7 months to recoup the expense of 1/2 a point.
If you want to live in or around OAK you are hosed. VA doesn't do $500,000 loans. You can get houses on the wrong side of 580 for a lot less but you'll need to stay in at night. On the plus side if you live in OAK you have the old "Governor Moonbeam" running the city. There are some alternatives to living close to OAK further out in the east Bay Area like Concord or even Benicia. You can commute in on BART fairly easily if you don't enjoy the daily gridlock. I grew up in the Bay Area and it's a shame how things have turned out down there.
Feel free to PM me. I'm sure I'm wasting bandwidth here bashiong my old stomping grounds but I know the Bay Area pretty well.
I can't say enough good things about VA financing though. It allowed us to hang on to our cash so we're looking for some investment property now.

 

[PTinbound]

Well folks, just to clarify, I washed out of A+P school in college so I wouldn't be a big candidate for a "fixer upper" in OAK. We're actually thinking of getting back to Texas (within 1.5 hours of HOU) or possibly NW Indiana (within 1.5 hours of MDW). Of course, I've got a 12 year old daughter who wants a horse or two with a few acres of land. I can't imagine getting something like that for much under $200k, and I don't know but I seem to remember something about a 200k limit for VA loans. Does anyone know if that's true?
Also, anyone know SWA's policy on taking out loans from the 401K? I wouldn't be doing this until probably third year pay anyway, assuming we hear about class dates. We are absolutely not ready to buy a house now while I'm at a regional, nor could we on first year pay at SWA. So I have a while to think about it. Heck, I doubt if I could get a mortgage for more than 120 now, nor would I want to. Thank you all for your ideas and keep them coming!

 

[PTinbound]

Well, I just answered one of my own questions. I went to va.gov and found out that in most cases you could get a VA loan for up to 240k. Now I bet I could find 4 or 5 acres somewhere outside of HOU for that....

 

[canyonblue]

Now I bet I could find 4 or 5 acres somewhere outside of HOU for that....

Yea, it's called Hobby.

 

[Mr. Irrelevant]

True but payments you make to any loan are after tax. You arent really borrowing from your 401, you're borrowing against it. If you have 100k in your 401 and borrow 50k your ballance in your 401 account is still 100k. You still own all of the shares that you owned prior to the loan. If the shares increase in value you still see all of the return that you would have had you not taken out the loan. And if it cost you 5k in interest payments over the life of the loan that money goes into your account as well.

Sorry xXpress1, I've been out of the investment management game for only 4-5 months but I'd be shocked if what you posted wasn't 100% wrong. One of the big downsides to borrowing from a 401k is the possible loss of retirement $$$ due to appreciation in the market while you're paying back your 401k. It can be substantial if the timing is wrong!!!! Obviously there are benefits to borrowing, but there is probably more to PTinbounds situation than we can all know and only he and probably a financial planner should sit down and figure it out. Good luck PT. Big decision.


Mr. I.

 

[Snoopy58]

There is an excellent financial advisor on staff at SWAPA; when you (P.T.) get the intro to SWAPA, ask about it & they'll give you his name & phone extension. Good guy to talk to, and he can give you the low-down on how borrowing from the pilot 401(k) will work. He may or may not get too deep into your specific situation; if not, he can probably recommend someone who can.

As you said, this is a little ways off in the future, and rules & tax laws & such can change between now & then. SWAPA will have the answers for you well before you're making an offer on the new P.T. Manor!

Cheers,

Snoopy