Is it better to borrow money from your 401K temporarily as a bridge loan as opposed to getting an actual bridge loan? I am interested in house and although I do not need to sell my house first, I would be left with little money during the transition period and I thought borrowing against a 401K only for 2 months max would be a good idea.
Using 401K as a bridge loan for house purchase
Jun 09, 2007
4 Replies
Interest on the 401(k) is not deductible. So 8% costs you 8%. The bridge loan, if set up correctly, i.e. has a home as collateral, and isn't an 'unsecured personal loan' would be a deduction, and likely cost less. But for 2 months, if that's all it is, the 401(k) loan can be had with minimal paperwork, and unless you happened to get fired during those two months, little risk.
JOE
Minimal paperwork, and probably no closing costs. Closing costs on a normal bridge loan easily could make up for the lost deductibility for a short-term loan.
Dave
The minimum period for a 401k loan from my company is 12 months. Check with your plan.
That's often the case, however I never seem to see any early repayment penalties.
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