With the median home value in Oakland hovering near $700,000, you might be staring at your latest bank account numbers and looking like this: 
There are few things in life more frustrating than that longing to own your own home, combined with the very real fact that your bank account is a bit on the skimpy side.
You know that buying your own home is part of #adulting and will help you build equity and stop throwing away money on rent, and on and on. But I totally get it. Saving money for that down payment, especially when you live in such an expensive place like Oakland, can be a huge challenge.
However, the Bay Area is full of stories about shrinking home inventories and multiple-offer situations, which means there are obviously others who have found a way to swing the dream of home ownership, even in this expensive market.
You may be watching those houses slip by right under your nose and growing increasingly frustrated, or even defeated. But you’re not alone.
Sixty-nine percent of Americans have less than $1,000 in a savings account, according to a GOBankingRates study. Sadly, 34 percent have nothing saved. That means that millions of Americans, for one reason or another, haven’t saved for the future.
Of course, that’s little consolation when all you want is to wave goodbye to your landlord and get settled in your own home. But keep your chin up, little grasshopper.
There are a number of ways to get your hands on that chunk of money you’ll need at closing when you buy a home. From second loans to outright grants, government programs abound.
If you’ve tried those with no luck, consider using the funds in your retirement accounts to buy a house in Oakland.
Yes, I said it. Gasp now, or forever hold your peace.
Mixed advice from financial professionals
Yes, many financial pros will say that I’m crazy for recommending that you use your retirement accounts to buy a house, which is why I want to remind you that I’m not a financial expert, despite what I tell myself in the mirror every morning. You should speak with your financial advisor before seriously entertaining using your retirement accounts to buy a house in Oakland or elsewhere.
That said, there are those who wholeheartedly support the concept. “Right now, low interest rates offer an unusual opportunity to buy a home, so we do sometimes recommend that our clients borrow against their retirement. Owning a home is an important way to build financial security,” says wealth advisor Ben Barzideh.
Most agree, however, that the strategy works best for younger homebuyers who have many, many years to rebuild their retirement nest eggs.
Using your 401(k)
Retirement plans are not required to allow loans, but 80 percent of employer-sponsored 401(k) plans do allow their participants to borrow against their savings, according to the Employee Benefit Research Institute. It’s important to determine if your plan is among those that do.
Then, learn what restrictions your employer places on these loans. Employers can limit the amount that can be borrowed, and they can have their own rules around loans. They can limit the number of loans per year, put a percentage of assets cap on it, as well as set the interest rates.
Why this could be a great idea
The beauty of borrowing against your 401(k) is that there is no bank involved, so therefore no credit check, making it quicker to get your hands on your cash. This also means that when you’re paying the loan back, you’re paying yourself back, not the bank. Your lender will also likely favor this over a credit pull, which will ding your credit score.
Some things to watch out for
One of the biggest downsides to using funds from your 401(k) happens if you find you can’t repay the loan according to the terms you agreed to. The outstanding balance will be reported to the IRS as a distribution, and you’ll have to report it as income.
This means you must include this amount in your gross income in the year in which the distribution occurs. You may also be taxed an additional amount, depending upon your age.
Be aware as well that most employers will demand repayment either immediately or within 60 days of a separation – whether you voluntarily quit or are fired or laid off.
Raid your IRA
In addition to your 401(k), funds in both the traditional and Roth IRA can be used to help you purchase a home. This strategy differs from using the 401(k) in that the IRS forbids loans from an IRA – you must take a disbursement.
The good news is that even if you haven’t reached the golden age of 59 ½ years of age, you can still avoid the IRA’s 10 percent early withdrawal penalty.
The bad news is that you may still be dinged for taxes on the withdrawal if you have a traditional IRA. You already paid taxes on your Roth IRA funds, so that disbursement won’t trigger the IRS’s itchy fingers, as long as the account has been open for at least five years.
It’s a bit more complicated than this, however. With a Roth IRA, for instance, you’ll need to be careful to use only contribution money, not earnings.
Again, there’s a lot to learn about using your IRA to fund your down payment and closing costs, and only a financial professional can adequately counsel you.
However, I just wanted to plant the seed of using your retirement accounts to buy a house in Oakland, as I know firsthand how frustrating it can be when you know you should buy a house, desperately want to buy a house, but just can’t seem to get there. But hey, #adulting.
If you want to discuss these strategies further, let me know. I’m never too busy for your questions and would love to chat about real estate over a cup of coffee, anytime.
