Using your retirement savings to buy a house probably isn’t worth it

But is it a good idea to jump on these rates if you have to dip into your retirement savings to do so? Probably not. Major purchases like buying a house are about more than taking advantage of financial breaks, says Eric Roberge, a certified financial planner and founder of Boston-based wealth management firm Beyond Your Hammock.

“I never tell people to buy real estate because of the situation. It’s more about, were you planning to buy real estate to begin with? And if so, what were you doing to prepare?” says Roberge, who regularly advises those in their 30s and 40s. 

Make sure you’re buying a home for the right reasons

“Don’t buy real estate because rates are down or because of the pandemic — buy real estate because it’s the best choice for you,” Roberge says. 

Low interest rates don’t always add up to savings in your pocket. Over half of home offers tracked by Redfin in August were part of a bidding war, which can mean that the overall cost of the home is higher. While the interest rate may be low, if you’re paying a higher price overall to secure the home you want, it could end up costing you more in the long run. 

If you’re considering buying a home in the current market, look at your savings levels before you browse listings, Roberge recommends. Do you have your cash reserves for emergencies set aside, plus money available for a down payment outside of your retirement savings? 

“If not, it’s probably not a good idea to raid your 401(k) in order to make that down payment,” he says. That’s because when you take money out of your retirement accounts, it doesn’t “magically grow back,” Roberge says. “It’s money you’ve removed that you’ve worked so hard to save. By putting that money into real estate, it’s a coin flip on whether that’s going to be a good investment or not.”

When you’re buying a home to live in, it’s not an investment in the same sense as buying stocks, Roberge says. “It’s looked at as a utility. It’s a place to live…You’re building equity, which is a fantastic thing. But it’s not this secret solution that’s going to magically make your financial life better,” he says.

Plus, there are ongoing costs to owning real estate, such as property taxes and maintenance. Those costs can really add up, especially if you didn’t build them into your budget. 

“An investment provides you a return on your cash,” Ryan Guina, founder and editor of the website Cash Money Life, told CNBC. “Unless you are renting out rooms or otherwise earning cash flow from your home, it is a liability.”

“That doesn’t mean you can’t make money when you sell your home,” Guina added. “But even paper gains can be misleading, as you need to account for the cost of the transaction, the carrying costs leading up to the sale and other factors.”

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