October 2008 Vol. 3 No. 10
• Should You Use Your 401(k) to Buy A House? • October's Home Value Improver • About Us

Should You Use Your 401(k) to Buy A House?

The stock market is getting slammed, and housing prices are coming down at a pretty good clip. For someone trying to get into the housing market, it looks like the planets are aligned. With your 401(k) funds losing money, it seems as if borrowing money from your retirement account for a real estate investment makes perfect sense. But, before you make any dramatic moves, be sure to understand the ramifications of taking this potentially risky step.

Remember: The reason a 401(k) is such a good deal is because it is your pre-tax income. So, if you want to "liquidate" your 401(k), that means you will have to pay the taxes that you did not pay when you earned it. In addition, you will pay a 10% penalty for withdrawing the money early. What does this mean in raw numbers?

Let's pretend you are liquidating an account:

You have saved: $100,000

You are in the 30% tax bracket, so you will be down to $70,000.

Add in a 10% tax penalty and you are down to $60,000

The above scenario, of course, does not take into account how much your account would otherwise grow over the next X years until you retire. Of course, the shrinking of accounts in recent months has many of us discouraged, but we have to assume that the market will eventually bounce back, as will your account. (Yes, I realize we don't have to believe this, but a person can hope, right?) Plus, you are receiving the pre-tax benefit, which automatically puts you 30% ahead of the game.

Borrowing from your 401(k)

Some plans allow you to borrow from your 401(k) account, but you must pay it back with interest. (The rate is usually prime plus 1 or so.) While the interest goes back to yourself, it's still questionable whether this is a good deal for you. The money you are earning to pay back the interest is post-tax, meaning you are paying tax on the money you earn and then reimburse with interest. Plus, as you pay back your loan you are not saving more and may even be missing out on employer-matched funds.

Remember that money is a very personal issue. What one person would liquidate her account for, another would never. You may be so anxious to get into a house right now that you will take this step. Perhaps you are confident that the housing market has hit bottom and the money you would lose on your 401(k) would be worth it in real estate savings. Just like clothing, there is no "one size fits all" when it comes to mortgages.

October's Home Value Improver

Five Ways To Brighten Up Your Kitchen in A Weekend

For all the formal living rooms and dining rooms of the world that are built and decorated for entertaining, the kitchen has them beat. It's the room in which your family and guests spend the most time. In fact, many modern architects are recognizing this fact and designing a more open floor plan so that people in the kitchen can be part of the living room activity and vice versa. Let's face it: the kitchen is the heart of the home. From here is where all meals, snacks, drinks, and sharing flows.

But if ripping down walls and investing in expensive new cabinetry and appliances to create your dream kitchen sounds a little ambitious for your budget, don't be discouraged. There are many things you can do to make your kitchen brighter, more efficient, and more welcoming.

  1. Open up your cabinets.
    While painting the cabinets is a fantastic way to give your kitchen a whole new look, if you're not up for the task or expense, try removing a pair of cabinet panels and replacing them with glass. It will make the room appear open and allow you to show off those pretty bowls that are hidden in the cabinet. You can also remove a drawer face and put some low baskets in the drawer's space.
  2. Add some fancy moldings.
    Rich moldings are not just for old houses anymore. Take a visit to your local hardware or home improvement store and you will find a selection of moldings that you can add to the bottom or tops of your cabinetry for a more finished look.
  3. Hang some plates on the backsplash, or that blank wall high above your appliances.
    You can get plate hangers very inexpensively, and display collectibles, vintage plates, or even the saucers from your fancy china.
  4. Go green - literally!
    Put some seedlings in pots on your windowsill to get a fresh look. I have a client who even uses grass seed in a long thin planter to have some green grass on the sill.
  5. Add bead board above the counters and underneath the cabinets.
    It will give your kitchen that homey, vintage flair. You can find it at any hardware store and have it cut to order.

Making these quick and inexpensive changes will make your kitchen more pleasant, which will appeal to potential buyers, or yourself!

As the presidential election looms closer, there is more uncertainty in the market than ever. But one thing is clear - whether Obama or McCain becomes president, our tax codes will change.

Tax changes can have a major impact on a person's ability to save or even to keep up with monthly expenses. Paychecks can dwindle quickly and tax refunds can quickly disappear. It's important to understand the possibilities and how you may be affected once we elect a president. By knowing the facts, you will be better prepared for any change that occurs.

As always, please feel free to call or email anytime for more information on any mortgage topic!

Best regards,
Debbie Siegel
Westchester Mortgage

P.S. You're receiving this E-Newsletter because you have a prior relationship with me or with Westchester Mortgage. If I've sent this to you in error, or if you want to remove yourself from the list at any time, just click the "SafeUnsubscribe" link at the bottom of this e-mail.

Click here to learn more about the lending process!

Westchester Mortgage simplifies the complex and often stressful process of finding the right loan program based on your financial goals and situation.

We provide unbiased advice regarding mortgage products offered by a wide variety of lenders. Our relationships with numerous banks and lenders allows us to select from thousands of programs to find the one that best meets your needs.

Follow this link for more information.

Enter your email here
to subscribe to

321 Walnut St. #412, Newtonville, MA 02460
617-965-1236 Fax: 617-965-1594

Copyright © 2006
Westchester Mortgage.
All rights reserved.