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Alternative loan funding for downpayment on a house or to pay off credit card debt

By Edited Aug 14, 2015 0 0

If you are in the market for a new home or need to consolidate credit card debt and need a loan, you probably have felt the pain of rejection and the stigma of denial. Banks are becoming increasingly more restrictive on loans and even if you qualify for a mortgage, saving for a down payment is not necessarily easy. In this economy it is important to approach a problem from every angle and find what suits your needs best. There is one resource that is often overlooked by a borrower in time of need and it is a real asset-your retirement fund!

Loan for downpayment:

Even if you have the ability to secure a mortgage, it will do you little good if you can not demonstrate to the bank that you have a down payment in place without taking on additional debt. Fortunately for a first-time home buyer, the federal government has issued legislation that allows up to $10,000 to be withdrawn penalty free from an IRA. It will still be taxed as income, however. Homeowners who have not owned a home in over two years are also eligible for this plan. This is a great way to fund a down payment with no extra debt.

But what should you do if you have a 401K and not an IRA? Money can still be withdrawn, but there will be a 10% penalty accessed as well as income taxes. The best thing to do it convert part of the 401K into an IRA and then withdraw the funds. Again, speak to your fund advisor to convert funds to an IRA.

Instead of a flat withdrawal, it is also possible to borrow against most 401ks at a reasonable rate over a period of a few years time. This is another option that has the advantage of not being taxable income since it is a loan. Unfortunately, if you choose this route to get a down payment for a home, the bank will generally factor the repayment into your debt burden which could increase you mortgage rate or disqualify you from getting a loan.

Loan for credit card:

Credit Card Debt Loan
What if you are trying to pay down or consolidate credit cards and not fund a home purchase? Withdrawing funds directly from a retirement plan may NOT be a good idea because of penalties and taxes. Though they are not require to by law, many retirement plans will allow you to borrow up to 50% of your vested total. Generally, the payback period is reasonable and the interest rate charged by the plan administrator could easily be 10% less than what you are paying on your credit cards. If you can't reduce your credit card debt with some other method, this is a viable option. Each plan is different so it is important to speak with an advisor to determine if you qualify for a loan.

The best way to get an asset is just convert an asset you already have. The real estate crash and valuable tax incentives from the government have truly made this a buyer's market. Now get looking! Your future home or financial freedom from credit card debt may be just on the horizon.



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