Is It Really a Good Idea to Tap Your Roth IRA for a Home Down Payment?
One of the things that the mortgage lender looked at when I was applying for my home loan was whether or not I had money in my retirement account. We have a Roth IRA, and that was money that the mortgage lender considered as “available” for a down payment. We didn’t use it, but there are many people who feel that using money from their Roth IRAs is a good idea. After all, there are no penalties if you withdraw money from a Roth IRA for use to buy a home. And, with the current market showing many people losses in their retirement accounts, many of them feel that perhaps “investing” in real estate might be the way to go.
However, it may not be the best course of action after all. Usamy News offers this insight into using a Roth IRA to fund a down payment for a home:
But don’t forget, the stock market is way down as well. And investments in equities and mutual funds are just as likely to show strong increases as real estate, once the economy recovers. Your money will likely earn a better return staying in your Roth IRA than it would investing it in a home - over the past 22 years, existing home prices appreciated an average of 3.4 percent a year, according to the Case-Shilling Index, while the “ballpark” figure for returns on an IRA is 8 percent a year - so financially, your deposit money is likely to appreciate faster by leaving it in a Roth.
In the end, taking money out of your retirement account is rarely a good idea, even if you are doing something important like buying a home. This is because you miss out on the earnings that you could be receiving. Even if you pay the money back eventually, you may find that you are growing your account slower with the missing principal.
