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No-Lunch4249 t1_ja89d5z wrote

Withdrawing early from an IRA is a double whammy of bad. First, you’ll have to pay income taxes on it when you file your 2023 taxes. Second, you take a 10% penalty.

This is not advisable.

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fox__in_socks t1_ja8dast wrote

Would it be more advisable to put less than 20% down then? Seems like the longer we wait, the more housing costs keep going up.

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No-Lunch4249 t1_ja8ed3o wrote

Unfortunately no one has a crystal ball that can see the future of the housing market, as much as they may pretend to.

Your options are:

  1. Buy with less than 20% down, take PMI, and hope interest rates don’t keep going up, and refinance out of the PMI in a few years

  2. Enjoy your low-rent situation for a while longer, continue building that down payment fund, and hope prices don’t continue rising and that interest rates start going back down

  3. Do your original idea of emptying your IRAs, take the 10% penalty plus the additional tax burden, plus the opportunity cost of having significantly reduced your retirement investments, potentially pushing your retirement years further out.

I can’t tell you which one is right, personal finance is personal after all. But for me, I think the 3rd option is the one with the biggest downsides.

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sw33ternity t1_ja8dyf5 wrote

You're likely better off with a lower down payment with PMI. I know when I first started looking the estimates from Zillow and the like went way over on PMI estimates, something like 225/month and it ended up actually being 60/month, which is very little compared to the taxation and penalty on an early IRA withdrawal.

Worst case, maybe reduce contributions to the IRA temporarily for cash flow with the mortgage, but avoid withdrawal if at all possible, or better yet, tighten up your budget on other aspects if they aren't necessary expenses.

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fox__in_socks t1_ja8e3bl wrote

Thank you! This is really helpful. We do have really good credit so I think we will get a good PMI rate. What concerns me is a higher monthly payment due to a lower down payment with the cost of living going up (groceries, preschool, etc) . I am wondering if we would pay more in the long run on interest than any tax hit we'd get on our IRA's if we put 20% down.

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sw33ternity t1_ja8k9yq wrote

This is really hard to provide more meaningful thoughts without knowing more details than you may be willing to provide. It will also definitely depend on your local real estate market, but ultimately nobody here can predict the future. For now, you need to set a hard budget first, inclusive of all long and short term goals, calculate from there how much you can comfortably handle on the mortgage, and plug in numbers into calculators with typical interest rates to see how much house you can actually afford, regardless of the preapproval amount listed on your lending letter. Play with the down payment amounts to see how much the monthly payment difference actually ends up being between 5%, 10%, 20% down, etc. Leave a bit of buffer for PMI for estimates below 20% down.

Some stuff to consider:

-You state single income, is your spouse planning on entering the workforce any time soon? If not, can you reduce paid child care needs?

-Sounds like you're public sector employee with pension, so are you still scheduled for any merit salary increases, or are you capped at "top step?"

-On the standard 30 year time frame, will the mortgage be paid off before you retire?

FWIW my median credit score was 804 out of the three bureaus to determine my PMI.

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fox__in_socks t1_ja8n5hc wrote

I am at one of the lowest salary steps for my classification, my income will keep going up but will hit a ceiling in a few years if i don't get a professional certification (studying now) My spouse does stay home but he will enter the workforce when all our kids are in full time school. My 2 younger kids will need to go to preschool, probably part time, in a year or two. They need the social development

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