Many millennials are stretching financially to buy homes.
Members of this generation are exhibiting risky behavior when coming up with a downpayment to buy a home, with about 1 in 3 (29 percent) saying they raided their 401(k) or IRA or borrowed against their retirement accounts, a move that could hurt their financial well-being, according to a new survey from Bank of the West.
Once-cautious millennials now view real estate as the “cornerstone” of their investment portfolio. Nearly 6 in 10 (56 percent) cited homeownership as the most popular ingredient of the American Dream, according to the bank’s “2018 Millennial Study” out Thursday.
Still, their rush into the market (42 percent said they own homes) and their decision to take on mortgage debt and dip into accounts earmarked for retirement is “alarming,” says Ryan Bailey, head of the retail banking group at Bank of the West. “Tapping your 401(k) to buy a home should be a last resort,” he says.
If a millennial does opt to tap retirement savings, Bailey recommends taking out a loan. A loan must be paid back to your account with interest and doesn’t result in a tax penalty, IRS rules state. Roth IRAs allow penalty-free withdrawals of up to $10,000 for a first-time home purchase, although your earnings may be subject to a tax. Homebuyers should also see if they’re eligible for hardship withdrawals.
Still, 92 percent of millennials who don’t own homes said they would like to buy one someday, according to the survey of 609 millennials between ages 21 and 34 conducted in November 2017.
Copyright 2018, USATODAY.com, USA TODAY, Adam Shell