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Using an IRA for Your Down Payment

Do you want to become a homeowner but do not have enough money for your down payment? No problem. The latest news suggests that you might actually be able to use your IRA funds for this. The fact that the real estate industry is booming is all over the news. Even though the year is nearing its end, it still is a very good time to purchase a home. What makes it even better is the fact that you might just be able to use your retirement fund for it.

Generally, you cannot take any money from the traditional IRA account until you are more than 59.5 years of age. And even if you do it, you would still have to pay a penalty of 10%. The Taxpayer Relief Act has modified the rules and allows owners to take money from their account under certain circumstances even if they are not that age and can do so without having to pay any fines. Buying, constructing and re-building your home are included in these circumstances. The problem is that only a few people know about this and so do not use it to their advantage.

One thing that you should know is that you can use your IRA funds only if you are a first time homebuyer. Surprising as it may be, you can be considered a first time home buyer even if you have previously been a home owner.

According to the IRA rules, you are a first time home buyer if you have had no financial interest in a residence during the last two years.  Assuming the last time you sold your house was in October 2011 and have not owned any house from then onwards, you would be considered a first time home buyer. So you can use your IRA funds for your down payment, and you would not have to face any legal issues with this.

Under the IRA polices, you can also use your funds for other homeowners provided that you are related to them. As such if your spouse, children or grandchildren are interested in buying a house, you can withdraw your IRA funds for them.

Though the option seems attractive, there are a few downsides as well. The most notable of these is that taxes are incurred in the process. If you really want to use this option, be sure to discuss it out with your financial advisor and then make a decision.


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