Roughly 98% of people want to own a home, according to a recent Bank of the West survey. But coming up with the required funds can be tough, especially for cash-strapped millennials in today’s competitive market.
To finance their purchases, one in three millennial homeowners withdrew money from or took loans against their retirement accounts, according to Bank of the Wests survey of over 600 U.S. adults ages 21 to 34. Meanwhile, one in five millennials who are planning to buy a home expect to do the same.
It’s an alarming trend, according to Ryan Bailey, head of Bank of the Wests retail banking group. “Millennials are so eager to become homeowners that some may be inadvertently cutting off their nose to spite their face.”
He recommends relying on savings rather than dipping into your retirement funds.
So, what’s the problem?
If you don’t have quite enough saved for your first home, you are allowed to pull money out of your retirement accounts, such as a 401k or an IRA.
But while dipping into your retirement savings may help you put down a bigger down payment and lower your mortgage rate, it also may mean those savings could experience a long-term setback.
Alternatives to Dipping Into Your Retirement
Before using retirement savings to purchase a new home, review your current spending. Look for any expenses you can cut to save money.
Millennials can consider scaling down their home dreams in order to reduce their home cost. The goal is to not get over your head with debt and interest payments, while still building your retirement savings.
With careful financial planning, millennials can have it all. You can have your dream home today, without compromising your retirement later on in life.
Are you sure you’re in the position to purchase a home? Can you make it happen without touching your retirement savings?