BOSTON — As housing prices rise, a new report reveals the surprising number of buyers who dipped into their 401(k) to own a home.
Nearly one in ten homeowners used retirement savings for a down payment, according to a survey from the consumer financial services company Bankrate. The median price of a house in Greater Boston hit $900,000 earlier this year.
“It’s just a reflection of how difficult it is to afford a home right now,” said Bankrate Analyst Jeff Ostrowski. “The notion of tapping retirement savings is not new. It’s just that it’s much more tempting now.”
Younger homeowners were more likely to have used retirement savings for a down payment, Bankrate found, with 16 percent of Gen Zers and 12 percent of millennials dipping into their nest eggs to buy property.
Because of penalties and taxes, Ostrowski said using retirement savings for home ownership should be a last resort. Instead, he said first-time buyers should consider other ways to come up with the cash, and lower expectations of having a 20 percent down payment.
“Don’t get too hung up on the idea of 20 percent down payment,” Ostrowski said. “A 20 percent downpayment is the gold standard—you’re going to get the best combination of mortgage rates and mortgage fees. But when you’re talking about a $900,000 median home price, that’s a $180,000 [down payment]. Not a lot of first-time homebuyers have a $180,000 in their high yield savings account.”
Ostrowski said every state has a housing authority that gives down payment assistance and low interest loans to first-time buyers. MassHousing offers down payment assistance up to $30,000 for those who qualify.
“It can complicate things as far as qualifying for the mortgage. You’ve got to go through some paperwork and some bureaucratic hurdles, but it’s definitely a way to get first time buyers into homeownership,” Ostrowski said.
25-year-old Jamaica Plain resident Joelle Perez said she’d love to own a home one day, but buying near Boston right now feels too out of reach.
“It’s very expensive. I am on Zillow all the time, but it’s way out of my budget,” Perez said. “It’s just really not good to dip into your retirement and I’m trying to invest and not touch it.”
This is a developing story. Check back for updates as more information becomes available.
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