TSP Loan for Home mortgage

[law87]

Hello all, I'm toying with the idea of taking out a TSP loan to put down for another mortgage, I could go with VA loan and put nothing down at all, but I was wondering if this is the better way to go? if anyone has done this please let me know.

I am planning to rent out the property once I have orders.

 

[law87]

gonna bump this for some monday help

 

[Valkyrie]

Never Ever take a loan from a retirement account. take a loan from a bank. let them carry the risk, not you.

10 reasons- Ric Edleman
http://www.cnbc.com/2014/09/08/top-10-reasons-you-should-never-borrow-from-your-401k-plan.html

8 reasons
8 Reasons To Never Borrow From Your 401(k) | Investopedia

 

[nasa1974]

If you take the money out to use as a down payment for a mortgage loan it costs you more than it is worth. First you pay taxes on the withdrawal, then you loose money if the stocks go up and you have to it back.

 

[weatherweenie]

First you pay taxes on the withdrawal,

I'm not sure if that is correct.

 

[RazorCat]

If you take the money out to use as a down payment for a mortgage loan it costs you more than it is worth. First you pay taxes on the withdrawal, then you loose money if the stocks go up and you have to it back.

I borrowed against my TSP many years ago while I had 15 or so years to retirement. It was a down year for stocks, I structured it to be paid back in 3 years, and the loan interest rate was something like 2.125% at the time. I borrowed enough to make a 20% down payment on my current house to avoid PMI. As for tax liability, you don't pay taxes as long as you pay it back in full.
No, it's not the best avenue for funding part of a mortgage, but if you structure it to pay it back in a short amount of time it is a viable option.

 

[alevin]

I've avoided borrowing from tsp all these years for all the reasons given at the links valkyrie provided. Am considering breaking the rules this year if it makes sense to break them, not sure yet. May have found the perfect retirement property last night. requires further research before I make any moves. cost of running power, water from 2-3 lots over, how many gpm the community well provides, how many acres allowed to water, HOA restrictions on use of land, IS there an HOA? there's a lot 2 over that has been used for small business, could still be used that way or as residential-has all utilities already due to past use. not interested in that lot, but if that one could be used mixed, maybe this one could be as well. decent road access, still rural. also need to investigate: soils, depth to bedrock, perk test for septic, etc.-the former commercial property has some very solid rock outcrops visible on the upper slopes. I like what I see. price is steep still but just came down by 30%, now it matches neighboring lot prices.

If I took loan from tsp, wouldn't be til fall, after had a chance to visit lot in person, ask more questions in person, if lot still available by then. would plan to pay off in 3 years-by intended retirement date. would mean serious belt tightening, but could pay off out remaining loan out of current Roth if job ends sooner than expected. By end of September this year-no early withdrawal penalties if not paid off prior to retirement. own property free and clear by retirement. that's my current thoughts. plan I wouldn't be considering at all if contingency factors weren't in place before pulling any tsp to finance the downpayment @ ~60%, 15yr fixed for the remainder. build once I'm ready to sell where I am currently.

Other option would be to only put down 20-30%, pulled from existing Roth.

 

[GUCHI]

Long story short I borrowed from my tsp to help finance a house I flipped. As far as I'm concerned it worked out great for me. It was around 2006 and when I was paying back my loan the market was down so I was buying shares and paying myself back at a time when share prices were cheap. So I was also kept contributing and paying back my loan at lower rates cha Ching when the market wasn't making me money but I was buying share cheap at least. I know I said that several times but I wanted to get my point across. I did know that I needed to pay off before retiring in 2014 to avoid that big taxe on capital gains, and I did. Soooooooo if the shoe fits wear it. Good luck to you

 

[law87]

If you take the money out to use as a down payment for a mortgage loan it costs you more than it is worth. First you pay taxes on the withdrawal, then you loose money if the stocks go up and you have to it back.

problem is it could also go down. I get your points though, I dont know about taxes on the loan.

 

[alevin]

taxes on the loan don't hit direct, not unless you only take them out once and haven't paid them back before you retire.

Otherwise they hit indirectly the first time, because you are paying the loan back with takehome pay, after taxes taken out. and because you are putting after-tax monies back in, you end up paying the taxes again second time when those funds come out again as retirement withdrawals. which is why I may still end up waiting to buy retirement prop right after I retire, not before. or may use outside funds to make big downpayment if I buy before retiring, rather than pull from tsp for pre-retirement downpayment.

 

[tom4jean]

taxes on the loan don't hit direct, not unless you only take them out once and haven't paid them back before you retire.

Otherwise they hit indirectly the first time, because you are paying the loan back with takehome pay, after taxes taken out. and because you are putting after-tax monies back in, you end up paying the taxes again second time when those funds come out again as retirement withdrawals. which is why I may still end up waiting to buy retirement prop right after I retire, not before. or may use outside funds to make big downpayment if I buy before retiring, rather than pull from tsp for pre-retirement downpayment.

Unless you are in the ROTH option. Then it is not taxed the second time coming out.