Financial advice for 401k loans vs. using the CARES act

As the beeb knows everything I thought I may as well ask. We currently live in the Austin, TX area but it is getting too shitty and crowded for us so we are looking to move. Unfortunately for me my income was impacted fairly significantly and I can not qualify for a large enough loan to purchase something without selling our home first. What I am trying to do is get in to something new and then do all of the repairs and maintenance on our old home prior to selling. I am not too concerned about having a mortgage on the new home because home 1 is paid off and homes in our neighborhood have appreciated alot and are selling in 3 - 4 days for over asking price (Thanks Apple, Samsung and Tesla). Our current home is worth the same or more than most of what we are looking at.

Anyhow, I am trying to decide if I should take out a 401k loan or just use the Cares act to pull money out of the 401k for the short term. Does anyone have anyexperience with this and what are the pros / cons. And are there any other options to cover the gap? I was quite surprised to find out that my paid off home that has approx. the same value as the homes we are looking at is counted as a liability when doing the mortgage calculations because of taxes and insurance.

 

Before you go through the work, are you sure spending X on repairs and maint at some point down the line will net X or more money than a sale now? Right now it's a buy high, but also sell high market. It'd suck to buy high, sell low if you miss the bubble.

 

Neither...

In the current market folks are standing in line to buy in some areas and will eat all the costs of the sale if you'll just sell them a house. I'd go secure the loan and buy the new property. 5 mins after you close put the for sale sign up and list yours. It will be gone without much effort and that cash transfer to the new loan will knock that out. I don't see any reason to ever borrow against a money earning tool like a 401k.

 

My understanding is 401k loan will not be taxed as income as long as you pay it back.

CARES act distributions are taxed as income with the "hit" spread over 3 yrs.

For this reason, after double checking with my full time CPA and running the exact numbers through a spreadsheet, I'd probably prefer the 401k loan.

 

If you are getting a mortgage on the new home, the preemptive 401K loan may come up as a red flag. Interesting to what others have to say

 

Good point @BigBird, although a 401k loan is not technically a loan it will need to be disclosed.

Also, if we are talking present tense, the CARES option expired on Dec 31, 2020.

 

How long do you need it for?

One time to buy commercial property for my business and once to buy another business, I have rolled out my entire 401(k) and IRA to make the deal happen. If you put the money back in, within 90 days, you pay no fees, as well as no penalties.

if it goes 91 days you have a 10% percent penalty plus applicable taxes.

From the little bit of research I have done it’s a little expensive to borrow from your own Self-directed 401(k) or IRA.

Also remember if you get terminated with a loan from your employer held 401(k), the loan becomes immediately callable.

 

Thats the problem. I can not secure a big enough loan to buy the new home without some financial trickery. The money would be back in the 401k within 2 months.

 

i mean ask for a buyer's contingency, maybe even give them some more $$ for the option of one.

 

That is the way I was initially leaning but it sounds like a withdrawl under the Cares act will have no penalties if paid back within 3 years.

 

From what I am seeing if you do not have cash in hand sellers are rejecting the offers.

 

i can see that...that happened to us a few years back. rock and hard place.

 

It would just be to cover the gap so we can move our shit in to the new home and do required cleaning / repairs. All of this just happened starting yesterday and I am in Alaska at work so it has been a bit of a whirlwind as we try to get things figured out.

 

Read my reply if you get it back within three months you are golden

 

can't you sell the house with the clause that you won't be out of there for another two months?

if it's a hot buyers market, they might be willing to wait.

 

good idea too. my buddy actually did that.

He sold the house and rented it from the new owners for like 6 months until he bought his house in FL and moved his stuff.

I think crashman's dilemma is that he wants to fix up the house for more $$

 

the fixing part:
https://www.homelight.com/blog/what-to-fix-before-selling-a-house/

ok here's some $ to spend https://businessdeccan.com/4-items-worth-fixing-before-selling-your-home/

what not to bother with:
https://www.realtor.com/advice/sell/selling-your-home-things-to-not-fix/


i read somewhere that the biggest ROI is painting the entrance door black. no shit.


unless something is damaged, i wouldn't bother fixing or polishing up (in a hot market)

buyers paying over asking means, they also have the $ to fix/design/remodel the house to their liking so all the time and $ spent by @crashman would be down the drain anyways.

 

In this real estate market, any offer that has any type of speed bumps will be rejected in a skinny second. Your purchase offer has to be clean and simple, not asking for anything and aggressive.

My advice....find a place to rent for 12-18 months in the location of where you're going. I don't have a crystal ball, but this real estate mess has got to settle down sometime....that gives you time to fix your place (I don't even suggest that right now unless it's major stuff) and then invest the proceeds while you rent. Hopefully the market calms down and you can buy on the downturn vs. at the peak.

 

Have you considered spending a couple of weeks playing Gamestop?

 

paper hands? GTFO!