Don't Tap Your IRA Early to Buy a Home in Today's Market

Given that home prices today remain elevated and mortgage rates are high as well, buying a place of your own could be an extremely difficult prospect. And if you have money sitting in an IRA, you may be tempted to raid that account to make a home purchase possible.

Normally, IRA withdrawals taken before age 59 1/2 incur a 10% early withdrawal penalty. But that penalty is waived if you withdraw up to $10,000 to purchase a first-time home.

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Hitting up your IRA might seem like a good bet if you're struggling to make a down payment on a house today. But in today's market, it doesn't make sense.

The median existing-home sale price in December was $405,400, per the National Association of Realtors. If you're trying to make a 20% down payment to avoid private mortgage insurance, you need to come up with roughly $81,000 for a typical home today.

Even if you're aiming for a 5% down payment, you'll need around $20,000. If you and a spouse each have an IRA, you could get $20,000 penalty-free out of those accounts. But then you'll be left with a huge mortgage you might struggle to keep up with. You might also risk ending up underwater on your mortgage if home prices plummet.

Plus, every dollar you take out of your IRA is a dollar you can't invest. And that could leave you with a huge savings shortfall once you actually retire.

It's incredibly frustrating to feel like you need to keep putting off homeownership. But you're much better off waiting until you can cover your down payment without having to raid your retirement savings. And doing so may not even solve the problem of affordability, even if you're technically able to eke out a down payment.

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