How the CARES Act can help you buy your first home

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March 27 the law on aid, relief and economic security against the coronavirus, known as the CARES law, was enacted as a way to deal with the economic fallout from the COVID-19 pandemic for our country. In addition to providing stimulus funds to eligible Americans, the law offers a provision that allows organizations and institutions to allow their employees to dip into their retirement savings and borrow or withdraw more than usual. This unprecedented step may actually help some people buy their first home earlier than expected.

It all comes down to retirement savings. Usually when you withdraw money of your 401 (k) or Traditional IRA before age 59 1/2, you are subject to a 10% penalty on the amount you withdraw, plus an automatic 20% withholding for federal taxes. But under the CARES Act, for the remainder of 2020, the 10% penalty is waived and you have three years to pay income taxes on your distributions.

You can also take out a loan from yourself. Normally if you choose to borrow money from your 401 (k), you are only allowed to borrow 50% of your acquired account balance up to $ 50,000. Under the new regulations, you can borrow 100% of your account balance up to $ 100,000.

“When you borrow on your 401 (k), you have a set of conditions to follow just like you do with any other loan, without needing to qualify and have your credit withdrawn. Your payments go back in your account and will be deducted from your paycheck, just like your contributions, ”says Brandon Renfro, a financial planner who specializes in retirement.

Under normal circumstances, digging into your nest egg early to finance a major purchase is a bad decision.

But taking advantage of the temporary easing of restrictions on distributions from retirement accounts to buy your own home, on the other hand, could potentially be a smart move right now, because “the down payment is often the biggest hurdle. that most people face when it comes to home ownership, ”says Kendra Barnes, founder of the real estate media company the key resource.

Philip Michael, entrepreneur and founder of New York Action Group, a real estate investment company, agrees that unprecedented times offer unprecedented potential for opportunity.

“Anytime there is a macro event of this magnitude, there will always be uncertainty and emotions will run high. Anytime that happens, it’s a buyer’s market,” says Michael. With the CARES Act, that gives anyone who’s had a decent nest egg, or even a 401 (k), the opportunity to capitalize on that. “

To make the most of it Provision of the CARES Act, create a plan that details the type of property you want to own and a compelling reason why you want to buy it. “If you are looking for a place to live long term, established with family, then it might be wise to buy. Also, why pay someone else’s mortgage if it isn’t necessary? Said Michel.

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