My spouse and I are about to buy our first house, and while we have enough saved up currently for our down payment, we're considering whether it makes sense to use some of that to pay off small student loans and then borrow from our 401k's to make up the down payment. Alternately, is it worth taking out a relatively short-term 401k loan to make part of the down payment (so as to maintain cash on hand for other moving expenses), rather than putting them on credit cards?
- Combined income:
- $175k/year (+ quarterly bonuses in the $2500-$5000 range)
- Net savings of roughly $5000/month (paychecks minus average expenses).
- Cash-on-hand: ~$25k.
- Purchase price: $390k, $22k down. (Yes, that's 3% down, non-FHA. The home is cheap for the area, and we have great credit scores.)
- Retirement savings:
- ~$36k combined in 401ks
- ~$8,500 in a Roth IRA
- Student loans:
- $3,200 balance, 5.75% interest (variable)
- $4,500 balance, ~5.75% interest (fixed)
- Others not worth repaying at this time.
So, we currently have enough on hand to pay the down payment (all closing costs included), and will have at least another $2500 saved up before settlement (payday!). Both 401k's allow for home-purchase loans (I don't know about the Roth), and we have no credit card debit. The difference between what we're paying for rent currently and what we will be paying for the mortgage payment will lower our per-month net savings to (very) roughly $3500.
If we do take money from the 401k's, we'd be planning on paying it back relatively quickly, alongside rebuilding the cash-on-hand savings. As several people have noted in the comments, if we kept saving instead of buying now, we'd be in a position to pay off the loans and not even need to think about borrowing in another six months or a year, presuming house prices don't go up more. But since we are going to be buying now, we're in the position of needing to make that decision.
How should we handle this?