by Jessica Jardine

Created on: April 17, 2010   Last Updated: April 18, 2010

Many people are not aware that you can take out a loan against your 401K when trying to acquire real estate or land. Laws do allow you to use your 401K as collateral or an asset, you just have to be very smart about it. There is however, a cap on the amount you are allowed to borrow against your 401K plan. Another creative way to make use of your 401K in conjunction with a real estate or land purchase is through real estate investment funds. Either way you choose you will find that using your 401K plan to invest in real estate is a creative option to investing without using your own immediate money.

401K account statements

Credit report

Explore the option of paying off your debts such as credit cards to reduce your debt and compare it to the option of using your 401K to fund a loan. Consider all the alternatives you have to fund your loan for your investment.

Calculate how much money you will need from your 401K. Only use the minimum amount of funds that you will require to fund your investment.

Approach your lender about using your 401K in conjunction with your loan. Ask about the interest rate and or any penalties that you may incur if you do decide to use your 401K.

Bring your 401K account statements with you when you go to your lender. The statements will be necessary to apply for your loan in conjunction with your 401K.

Develop a plan to replenish the money back into your 401K. You can always recover in the long run from tapping into your retirement money as long as you put it back.

Tip

A good piece of information to know is if you do decide to explore the option of using your 401K in acquiring real estate or land your purchase is not eligible for a mortgage interest tax deduction.

Experts do advice not to use your 401K to acquire real estate or land if at all possible.

Warning

You must be aware that in the option of using your 401K to purchase real estate or land the Internal Revue Services do make the process very difficult, and often you will incur stiff penalties and additional taxes.

It is only permissible to use your 401K to purchase real estate or land on your first home purchase. It will not be allowed for an investment of a second home.

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