By: Catey Hill – nypost.com – July 19, 2018
This is one point financial experts want to drive home.
More millennials are buying homes as the economy rebounds. Now, more than 37 percent of millennials ages 25 to 34 own a home, according to data released this month from the Urban Institute. What’s more, nearly all of them dream about it, with 96 percent of millennials either saying they want to own a home or already do, according to a survey of more than 1,000 adults released Thursday by Bank of the West.
But that doesn’t mean they’re buying or planning to buy homes smartly. Indeed, nearly one in three millennial homeowners (29 percent) have dipped into their retirement funds for down payments (compared to just 17 percent of adults overall) and two in 10 millennials who don’t yet own a home say they plan to tap their IRAs or 401(k)s to buy one.
While there are some instances in which it can make sense to do this, it’s often a big no-no, financial experts say, as tapping your retirement funds can be costly and leave you under-saved for retirement. (And millennials are already undersaved for retirement as it is, with almost half having nothing put aside at all.)
“The fact that nearly one in three millennials who already own their homes have dipped into their retirement nest eggs to finance their down payment is alarming,” said Ryan Bailey, head of the Retail Banking Group at Bank of the West. “Millennials are so eager to become homeowners that some may be inadvertently cutting off their nose to spite their face.” Instead, you should usually just save up for the down payment, leaving your retirement funds intact, Bailey advises.
The reason millennials are making this risky move is because they believe owning a home is the No. 1 ingredient to their American dream (56 percent), taking precedence over paying off debt (51 percent) or retiring comfortably (49 percent), the survey revealed.
But in general, you should prioritize paying off debts and saving for retirement before buying a home, according to Mitchell C. Hockenbury, a certified financial planner at 1440 Financial Partners in Kansas City. “The reason is you have much more flexibility to adapt to life happening when you are debt-free (debt-free on credit cards at a minimum),” he explained. “Additionally, having the debts paid off will assist in your home-buying process — better rates, larger loan, ability to quickly save up for a down payment.”
Putting retirement savings ahead of homeownership has advantages, too, he noted. These include the fact that “if you get too large a loan on the house, you may not have enough to save for retirement,” and “if you are saving toward retirement, it helps you determine how much house you can afford,” he said. (Though the number of foreclosures is way down from recessionary levels, there were still 189,870 US properties with a foreclosure filing during the first quarter of 2018. That’s up 4 percent from the previous quarter, according to data from ATTOM Data Solutions.)
Still, there are “limited” circumstances in which it can make sense to tap your retirement funds for a down payment, like when you get an incredible deal on a home, Bailey said. Here’s how to do it wisely.