Thread: TSP for House Down Payment

Originally Posted by Berimbauone

Perhaps some of you more experienced TSP users can give me some guidance. I'm a new fed employee and have been diligently contributing to TSP for about a year now.

My short-term goal is to buy a house for wife, baby and I. How exactly can TSP funds be used for buying a home? What are some of the pors/cons I may want to consider in using the TSP for this?

I apreciate any and all the help.

Cheers

TSP loan info
http://www.tsp.gov/features/chapter11.html

Don't do it - get a part-time job and save the money from that for your down payment. We are in the early stages of a mega trend secular bull market and you should let this market help you save for another rainy day. It does take money to make money and it takes time to earn your money so you can invest.

I say get a nice place for your family to live. Too many of my co-workers have kept their families living in junky houses for years and years.

A major pro of borrowing from the TSP is the interest rate, and you can adjust the payments up or down with a click of the mouse.

A major con would be it can take several years to build your TSP account back up to where it was when you first took out the loan.

If the market tanks when you have the loan out you'll be looking pretty smart. If it goes way up you'll be kicking yourself.

You know your situation best . Upside = all interest on the TSP loan goes back in your account. Downside the amount taken out for the loan is not helping your nest egg. Just remember anytime you borrow from the TSP you're borrowing from yourself.

I like parts of Birch's answer. Don't borrow against TSP, but you NEED a nice down payment with the lending standard tightening.

Alway ask if there is a penalty for paying off the loan early. This is not a new thing, but a lot of subprime folk are stuck because of the early pay off penalty.

Good luck!

IMO it is fine to borrow from your TSP account to buy a house. TSP has two types of loans, General and Residential. With the residential it will require paperwork and a copy of the Real Estate contract. The General loan application is a one page simple form. The payments can be carried out for 5 years for the General or 15 years for the Residential. You can use a General loan for a home purchase. A $10,000 for 5 years should be less than $100 per pay period. The interest that you pay on the loan will go back into your TSP account.


The real estate market is busting in certain regions, there are deals out there. There are also a lot of overpriced homes, so shop around. I’m always looking at real estate, less that 1% of properties are doable for me. Don’t be afraid to offer less than the asking price, I offered 75k for a 110k last year and after 2 months the seller came down to my offer. In 20 years you could have your house paid for and it could be worth a least twice what you paid for it!

Originally Posted by Birchtree

Don't do it - get a part-time job and save the money from that for your down payment. We are in the early stages of a mega trend secular bull market and you should let this market help you save for another rainy day. It does take money to make money and it takes time to earn your money so you can invest.

Birch,
Correct me if I’m wrong, but didn’t I read in one of the other threads that you were going to sell some shares of stock to buy an ocean front home? If so, what’s the difference from selling some TSP shares to get a loan that will be for a real estate investment?

Originally Posted by Gilligan

Birch,
Correct me if I’m wrong, but didn’t I read in one of the other threads that you were going to sell some shares of stock to buy an ocean front home? If so, what’s the difference from selling some TSP shares to get a loan that will be for a real estate investment?

Point - lil buddy.

Not to mention the idea of having to repay pre-tax dollars with post-tax dollars... Paying my good uncle once is enough! Having to pay him twice though is stretching my generosity quite a bit.

IF you would have money in your TSP invested in the G-fund then taking out a loan to yourself is a good way to get a low interest loan. Remember that if you leave the federal government you will have to repay the loan or you could get an early withdrawl penalty.

If you would not have money invested in the G-fund, then you will be missing the difference in interest between what is in the G-fund ~ 4% and the fund you would be invested in ~6-10% long term in stocks. This will make a big difference to the value of your account long term especially if you are young.

If you are early in your career, I'd really suggest that you would be better off not doing the loan and being fully invested in stock funds. Better to wait on the house and not impact your retirement. Check out the impact for yourself using the tool on the site below.

http://hr.er.usgs.gov/calculators/tsp/tsp.pl

Originally Posted by ChemEng

Not to mention the idea of having to repay pre-tax dollars with post-tax dollars... Paying my good uncle once is enough! Having to pay him twice though is stretching my generosity quite a bit.

Two scenarios: 1 you get a loan from TSP and 2 you get a loan from your bank. Both interest rates are the same. How is there any tax consequence from using your TSP rather than your Bank? In the case of the TSP loan you are paying the interest to yourself into your account. The account balance at the end of the loan would be the same if you had the money invested in the g-fund (assuming interest in G fund stays the same which it won't - could go up or down) or had given yourself a loan.