So many Americans are wondering if they should buy a home now or rent. Today people think they should own a home. But there is that argument that thinks that for many, renting is better. While home ownership provides security, it doesn't necessarily give you the returns of equities. Using history as a guide, you can reasonably expect roughly 8% annual gains on your stock portfolio over the long term. House prices, on the other hand, tend to follow the rate of inflation.
Finally, don't forget that even with the tax-breaks of home ownership, you will still be incurring out-of-pocket costs that you wouldn't encounter renting from the cost of ripping down wallpaper to repairing a leaky roof, even gas for the lawn mower. Before you think about buying, estimate how much the costs will be. Don’t put yourself in the position that you are living hand-to-mouth even if it is in your own home.
Draining Your 401(k) for a down payment
Even though it is an option, withdrawing money from your 401(k) to buy a house is a bad idea. Assuming you're not at least 59 1/2 years old, you'll owe taxes plus a 10% penalty. You will also cripple your retirement savings, since most plans won't allow you to contribute to your plan for at least a year following a withdrawal. This means you're going to lose out on your company match as well as future tax-deferred contributions, not to mention the earnings on the money you've withdrawn.
Borrowing from a 401(k) isn't much better. If you leave the company for any reason, you run the risk that your loan will be called immediately. While out of your account, those dollars will also miss out on any market gains, and that tax-deferred growth.
Moving to or within Virginia? Contemplate renting an apartment in Lynchburg, VA. We invite you to contact Walden Pond Apartment Homes for more information.
Excerpts from Smart Money