TSP Loan for First Time Homebuyer

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te5486a
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Joined: Sun Feb 28, 2010 10:33 pm

TSP Loan for First Time Homebuyer

Post by te5486a » Tue Mar 21, 2017 8:40 am

Income: ~$125,000.00 a year.
Emergency funds: Three months of expenses (Federal Employee)
Debt: None
Tax Filing Status: (Single, wedding planned for the Spring of 2018)
Tax Rate: 25% Federal, 8.5% State
State of Residence: Washington DC
Age: 29
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 40% of stocks
Desired Domestic allocation: 70% Large & 30% Small (tilt to small caps)

Portfolio is ~$270,000.00 split between the Thrift Savings Plan & a Roth IRA, however, $50,000.00 of the ~$270,000.00 is allocated for a first time home purchase. We plan on taking a loan against my thrift savings plan after the wedding and combined with future savings, buying the house together. All percentages listed below utilize the total account value.

Current retirement assets

His TSP - ~$210,000.00
34.73% - G Fund - ~$95,000.00 ($50,000.00 allocated to home purchase)
27.41% - C Fund - ~$74,000.00
11.75% - S Fund - ~$32,000.00
3.22% - I Fund - ~$8,000.00
Company match of 5%

His Roth IRA at Vanguard - ~62,000.00
22.88% Vanguard Total International Stock Index (VTIAX) (0.11%) - ~$62,000.00

Contributions

New annual Contributions
$18,000.00 his TSP (5% match - $6,250.00)
$5,500.00 his Roth IRA
All other $ will be split between wedding and home down payment.

Available funds

Funds available in TSP (C, S, I, F, G, Target dates): https://www.tsp.gov/InvestmentFunds/Fun ... index.html

Funds available in Roth: Anything at Vanguard


Questions:
1. Drawbacks and experiences with taking a TSP loan? The most obvious one is that $50,000.00 will not be in the market compounding, however, I'd rather have a home. The well below market rental apartment I'm currently residing in has pest issues (mice/cockroaches) and an absentee landlord. It's old and outdated. The significant other and I have agreed to suck it up for another year and treat those pest issues as best we can and continue to sock away money (most of her cash flow is allocated to law school debt). It's really hard to find another place in DC at ~$1,200.00 a month (including utilities) in a safe neighborhood.

It's going to take more than $50,000.00 for a down payment on a house in the DC area while avoiding PMI.

2. Looking for any information/resources on first time home purchases. Reading recommendations are appreciated.
Last edited by te5486a on Tue Mar 21, 2017 9:04 am, edited 1 time in total.

kelvan80
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Re: TSP Loan for First Time Homebuyer

Post by kelvan80 » Tue Mar 21, 2017 8:48 am

You didn't mention your income and debts. So would you essentially be using a loan for 100% of the value of the house? Why not just use the next 12 months to save the $50k to avoid going into debt for your down payment?

te5486a
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Re: TSP Loan for First Time Homebuyer

Post by te5486a » Tue Mar 21, 2017 9:06 am

Added income. A down payment is estimated to be more than $50k (more likely $100k) for a home in the DC area while also avoiding PMI.

orca91
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Re: TSP Loan for First Time Homebuyer

Post by orca91 » Tue Mar 21, 2017 9:07 am

Yes, sounds like there is at least a year before the house buying starts... what can the TWO of you save between now and then? Why is the down payment all up to you to come up with?

If it is still needed to dip into retirement accounts for the down payment, I would take from the Roth before the TSP loan. Sure, it would stink to lose the Roth space, but I'd rather take from there and not have to pay myself back. My take on it anyway.

te5486a
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Re: TSP Loan for First Time Homebuyer

Post by te5486a » Tue Mar 21, 2017 9:12 am

We have both the wedding and the house down payment as major upcoming expenses. We're working together on a budget, but I do not anticipate being able to not touch any of the retirement accounts. My fiancée is saddled with significant student loan debt from law school at ~$100k. Her income pre-tax is ~80k and the loans are double digits in some cases. She's had difficulty refinancing them. I would rather she focus most of her savings on reducing her debt at this point.

orca91
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Re: TSP Loan for First Time Homebuyer

Post by orca91 » Tue Mar 21, 2017 9:47 am

Maybe the home buying should wait for a bit, and you guys focus on the wedding, paying down the debt, and find a better place to rent for a while? You will qualify for more home without her student loans around anyway. Not everything has to be done at once.

Barefoot
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Re: TSP Loan for First Time Homebuyer

Post by Barefoot » Tue Mar 21, 2017 9:48 am

1. You have more than $50K in the G fund now, but say you have a concern that loan money will not be in the market compounding. Why haven't you at least moved the $45K above the loan limit out of G and into something else?

2. You pay "yourself" the G fund interest rate when you pay back money loaned out of TSP.

orca91
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Re: TSP Loan for First Time Homebuyer

Post by orca91 » Tue Mar 21, 2017 9:54 am

Are either of you veterans? The VA loan would allow little to zero down and no PMI.

Lots of good threads on BH about home buying. If you search, there will be plenty of reading for you here alone. This is a good one too with lots of reading in the questions and articles.... https://mtgprofessor.com/home.aspx

te5486a
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Re: TSP Loan for First Time Homebuyer

Post by te5486a » Tue Mar 21, 2017 10:51 am

Barefoot wrote:1. You have more than $50K in the G fund now, but say you have a concern that loan money will not be in the market compounding. Why haven't you at least moved the $45K above the loan limit out of G and into something else?

The current G fund allocation reflects a 20% allocation to Bonds and in addition, the $50k for the loan. Given the short-term need for the $50k, I find it to be prudent not to take risk with these funds.

2. You pay "yourself" the G fund interest rate when you pay back money loaned out of TSP.
Correct, that's my understanding as well.

te5486a
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Re: TSP Loan for First Time Homebuyer

Post by te5486a » Tue Mar 21, 2017 10:51 am

orca91 wrote:Are either of you veterans? The VA loan would allow little to zero down and no PMI.

Lots of good threads on BH about home buying. If you search, there will be plenty of reading for you here alone. This is a good one too with lots of reading in the questions and articles.... https://mtgprofessor.com/home.aspx
Thank you - no, we are not Veterans. I'll check out the link!

te5486a
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Re: TSP Loan for First Time Homebuyer

Post by te5486a » Tue Mar 21, 2017 10:54 am

orca91 wrote:Maybe the home buying should wait for a bit, and you guys focus on the wedding, paying down the debt, and find a better place to rent for a while? You will qualify for more home without her student loans around anyway. Not everything has to be done at once.
That's certainly an option. It just bothers both of us to spend more $ on rent - we'd be paying ~$2k for anything decent in DC. That's ~1k a month that could go to wedding, debt, or home.

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hand
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Re: TSP Loan for First Time Homebuyer

Post by hand » Tue Mar 21, 2017 11:12 am

What happens if you can't / don't repay the TSP loan?

Biggest downside here other than time out of market (assuming you can afford to borrow from your retirement accounts in the first place) is that you run into a job / health hiccup and your financial problems impact your retirement savings.

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Tamarind
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Re: TSP Loan for First Time Homebuyer

Post by Tamarind » Tue Mar 21, 2017 11:21 am

You are not stuck with the two choices of awful below market rental vs overextending to buy. You can choose to move into decent market rate rental digs.

What would the impact be on your savings/loan repayment rate of the increased rent? I bet it's lower than the impact of mortgage plus taxes and maintenance plus interest on down payment loan!

Consider a house listing that you would be tempted to buy, calculate monthly costs including interest and some maintenance money. Then look what you can get in a rental for that amount.

te5486a
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Re: TSP Loan for First Time Homebuyer

Post by te5486a » Tue Mar 21, 2017 11:32 am

hand wrote:What happens if you can't / don't repay the TSP loan?

Biggest downside here other than time out of market (assuming you can afford to borrow from your retirement accounts in the first place) is that you run into a job / health hiccup and your financial problems impact your retirement savings.
I'd pull from savings/liquidate Roth to avoid withdrawal penalties.

My job is a federal position within VA. Even with the latest budget submission, it's rather secure.

te5486a
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Re: TSP Loan for First Time Homebuyer

Post by te5486a » Tue Mar 21, 2017 11:35 am

Tamarind wrote:You are not stuck with the two choices of awful below market rental vs overextending to buy. You can choose to move into decent market rate rental digs.

What would the impact be on your savings/loan repayment rate of the increased rent? I bet it's lower than the impact of mortgage plus taxes and maintenance plus interest on down payment loan!

Consider a house listing that you would be tempted to buy, calculate monthly costs including interest and some maintenance money. Then look what you can get in a rental for that amount.
I will have to calculate both scenarios (increased rent) & house/ownership costs. Thank you for the comment. We definitely do not want to overextend - I'm also not sold that borrowing from the TSP is overextending though.

Slacker
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Re: TSP Loan for First Time Homebuyer

Post by Slacker » Tue Mar 21, 2017 11:58 am

te5486a wrote:
Tamarind wrote:You are not stuck with the two choices of awful below market rental vs overextending to buy. You can choose to move into decent market rate rental digs.

What would the impact be on your savings/loan repayment rate of the increased rent? I bet it's lower than the impact of mortgage plus taxes and maintenance plus interest on down payment loan!

Consider a house listing that you would be tempted to buy, calculate monthly costs including interest and some maintenance money. Then look what you can get in a rental for that amount.
I will have to calculate both scenarios (increased rent) & house/ownership costs. Thank you for the comment. We definitely do not want to overextend - I'm also not sold that borrowing from the TSP is overextending though.
When you say "DC" you are also checking in NOVA too right? You can find reasonable housing in safe neighborhoods in Springfield and Alexandria. In 2015 (when I was last there) I was paying $1850/month rent for a 1200sq ft 2bdrm/2bath condo with 2 parking spaces on Eisenhower close to the Eisenhower station in Alexandria. That is a lot more than $1200 utilities included, but probably cheaper than what you would pay to buy a home after including Taxes, Insurance, HOA and maintenance. We subletted out one bedroom and bath to a coworker leaving us with $925/month plus 1/2 utilities to pay. Being a childless married couple it was quite easy for us to share a condo (the coworker was also late 40s, clean, responsible and pleasant to chat with).

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Ketawa
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Re: TSP Loan for First Time Homebuyer

Post by Ketawa » Tue Mar 21, 2017 12:56 pm

I took out a TSP residential loan to purchase my first condo. Then I took out a TSP general loan to earn 5% FDIC insured in taxable and ensure I could max my TSP contributions (every year since 2012). Then I paid back my TSP general loan early with the intention of either living off the equity of my condo sale later this year, or rolling the equity into the down payment for a condo in the DC area and taking another TSP general loan.

To me, TSP loans are a tool to go back in time and pretend as if you had not maxed your TSP contributions, and saved for a down payment in a taxable account instead. That's what the vast majority of people in this country do, and nobody raises an eyebrow. However, propose taking a TSP loan and you're "raiding your retirement". Nobody has said that in this thread (yet), but it's pretty common. TSP loans are useful for ensuring you can continue to max contributions every year. If you don't intend to max contributions, then you can theoretically make up some of the contributions in a future year.

As you pointed out, Roth contributions can be used to avoid taking a taxable distribution if you have to repay the loan suddenly.

orca91
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Re: TSP Loan for First Time Homebuyer

Post by orca91 » Tue Mar 21, 2017 1:11 pm

How is taking a TSP loan out to be sure you can max. out TSP contributions a good idea? I really can't wrap my head around that one.

DCChak
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Re: TSP Loan for First Time Homebuyer

Post by DCChak » Tue Mar 21, 2017 2:04 pm

Roth contributions can be withdrawn tax free, but earnings on those contributions are subject to a penalty.

How much of the $62k in Roth is from contributions? It seems you would be comparing a 0% loan on your Roth, with more flexible timing, to a ~2% loan with your TSP, with timing extendable up to 15 years. Hopefully, you would be able to payoff your TSP loan with home equity gains in a few years, but as we have seen in the DC area, there is no guarantee of housing price gains.

Is the $125k in income just for the single filer? What will the combined income be? Not that it will affect your decision-making, but depending on the combined income, you may be nearing the end of your ability to contribute to the Roth.

At 29, I wanted to be close to DC, which affected my living choices. Once you start looking around at housing values, and pay attention to the quality of school districts, you may find yourself more inclined to look further out into the suburbs. Prices can vary widely as you move out ... and not all places further out are cheap.

As I'm sure you know, your VA is one of the few agencies that could have more $ directed to it instead of cuts, based on the current budget. So in the near term, you appear to have relatively more security than many other Federal agencies. The skinny budget is merely a starting point, but there does appear to be the potential for significant disruption to the Federal workforce, which may very well lead to significant disruption in DC area housing prices, possibly in your favor. It may be wise to rent while you get a better read for how the budget actually will shake out.

Also, you say she has significant law school loans. Is she eligible for any limited payment plans, or loan forgiveness programs? If these are possible options, it might be advantageous not to rush to pay off the loans, and instead to adhere to whatever requirements those programs might have. Income levels here, both individual and combined, might also be relevant considerations, as the student loan interest deduction phases out at $80k MAGI for single, and $160k MAGI for married.

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Ketawa
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Re: TSP Loan for First Time Homebuyer

Post by Ketawa » Tue Mar 21, 2017 2:23 pm

orca91 wrote:How is taking a TSP loan out to be sure you can max. out TSP contributions a good idea? I really can't wrap my head around that one.
OP has a need for funds outside the TSP (home down payment). It's outside the means of most people to max TSP contributions every year and save $50K on top of it in a taxable account. Instead, the OP (and I) max TSP contributions every year, and take the funds out of the TSP when needed for the down payment. You can continue to max TSP contributions every year while repaying the loan.

te5486a
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Re: TSP Loan for First Time Homebuyer

Post by te5486a » Tue Mar 21, 2017 2:25 pm

Slacker wrote:
te5486a wrote:
Tamarind wrote:You are not stuck with the two choices of awful below market rental vs overextending to buy. You can choose to move into decent market rate rental digs.

What would the impact be on your savings/loan repayment rate of the increased rent? I bet it's lower than the impact of mortgage plus taxes and maintenance plus interest on down payment loan!

Consider a house listing that you would be tempted to buy, calculate monthly costs including interest and some maintenance money. Then look what you can get in a rental for that amount.
I will have to calculate both scenarios (increased rent) & house/ownership costs. Thank you for the comment. We definitely do not want to overextend - I'm also not sold that borrowing from the TSP is overextending though.
When you say "DC" you are also checking in NOVA too right? You can find reasonable housing in safe neighborhoods in Springfield and Alexandria. In 2015 (when I was last there) I was paying $1850/month rent for a 1200sq ft 2bdrm/2bath condo with 2 parking spaces on Eisenhower close to the Eisenhower station in Alexandria. That is a lot more than $1200 utilities included, but probably cheaper than what you would pay to buy a home after including Taxes, Insurance, HOA and maintenance. We subletted out one bedroom and bath to a coworker leaving us with $925/month plus 1/2 utilities to pay. Being a childless married couple it was quite easy for us to share a condo (the coworker was also late 40s, clean, responsible and pleasant to chat with).
Yes, willing to live in NOVA or MD. Renting for a bit longer in a nicer unit is not out of the question it just delays the home purchase a bit.

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Ketawa
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Re: TSP Loan for First Time Homebuyer

Post by Ketawa » Tue Mar 21, 2017 2:26 pm

DCChak wrote:Roth contributions can be withdrawn tax free, but earnings on those contributions are subject to a penalty.

How much of the $62k in Roth is from contributions? It seems you would be comparing a 0% loan on your Roth, with more flexible timing, to a ~2% loan with your TSP, with timing extendable up to 15 years. Hopefully, you would be able to payoff your TSP loan with home equity gains in a few years, but as we have seen in the DC area, there is no guarantee of housing price gains.
There is no way to put the Roth contributions back in after they are taken out, so it is not a loan. This is why a TSP loan is preferable with the Roth contributions used in an emergency to pay back the TSP loan. There is a wiki article on using a Roth IRA as an emergency fund. https://www.bogleheads.org/wiki/Roth_IR ... gency_fund

te5486a
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Re: TSP Loan for First Time Homebuyer

Post by te5486a » Tue Mar 21, 2017 2:38 pm

DCChak wrote:Roth contributions can be withdrawn tax free, but earnings on those contributions are subject to a penalty.

How much of the $62k in Roth is from contributions? It seems you would be comparing a 0% loan on your Roth, with more flexible timing, to a ~2% loan with your TSP, with timing extendable up to 15 years. Hopefully, you would be able to payoff your TSP loan with home equity gains in a few years, but as we have seen in the DC area, there is no guarantee of housing price gains.

Is the $125k in income just for the single filer? What will the combined income be? Not that it will affect your decision-making, but depending on the combined income, you may be nearing the end of your ability to contribute to the Roth.

At 29, I wanted to be close to DC, which affected my living choices. Once you start looking around at housing values, and pay attention to the quality of school districts, you may find yourself more inclined to look further out into the suburbs. Prices can vary widely as you move out ... and not all places further out are cheap.

As I'm sure you know, your VA is one of the few agencies that could have more $ directed to it instead of cuts, based on the current budget. So in the near term, you appear to have relatively more security than many other Federal agencies. The skinny budget is merely a starting point, but there does appear to be the potential for significant disruption to the Federal workforce, which may very well lead to significant disruption in DC area housing prices, possibly in your favor. It may be wise to rent while you get a better read for how the budget actually will shake out.

Also, you say she has significant law school loans. Is she eligible for any limited payment plans, or loan forgiveness programs? If these are possible options, it might be advantageous not to rush to pay off the loans, and instead to adhere to whatever requirements those programs might have. Income levels here, both individual and combined, might also be relevant considerations, as the student loan interest deduction phases out at $80k MAGI for single, and $160k MAGI for married.
Regarding the Roth, $40k is contributions. I could cover the $10k difference without penalty if needed.

As for income, the ~$125k is a single filer, me. My spouse is making ~$80k, so ~205k if married. That roth space would likely be unavailable w/o doing a backdoor conversion. I'm not sure on my MAGI, but my AGI was ~$96k.

School districts are certainly a factor - no kids yet, but looking at potentially adopting in the future.

We would not be buying until after the wedding - it will be interesting to see how the budget process shakes out.

My fiancée works for a federal government contractor doing FOIA work - she is not currently eligible for payments plans or loan forgiveness. She was seeking federal employment, but many of those opportunities disappeared following the hiring freeze.

te5486a
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Re: TSP Loan for First Time Homebuyer

Post by te5486a » Tue Mar 21, 2017 2:44 pm

Ketawa wrote:I took out a TSP residential loan to purchase my first condo. Then I took out a TSP general loan to earn 5% FDIC insured in taxable and ensure I could max my TSP contributions (every year since 2012). Then I paid back my TSP general loan early with the intention of either living off the equity of my condo sale later this year, or rolling the equity into the down payment for a condo in the DC area and taking another TSP general loan.

To me, TSP loans are a tool to go back in time and pretend as if you had not maxed your TSP contributions, and saved for a down payment in a taxable account instead. That's what the vast majority of people in this country do, and nobody raises an eyebrow. However, propose taking a TSP loan and you're "raiding your retirement". Nobody has said that in this thread (yet), but it's pretty common. TSP loans are useful for ensuring you can continue to max contributions every year. If you don't intend to max contributions, then you can theoretically make up some of the contributions in a future year.

As you pointed out, Roth contributions can be used to avoid taking a taxable distribution if you have to repay the loan suddenly.
I could not do both - save in taxable and max out the TSP. Maxing out the TSP also allows me to shield income from relatively high DC taxes (as well as Federal), so I would continue to do so even with the loan.

Leemiller
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Re: TSP Loan for First Time Homebuyer

Post by Leemiller » Tue Mar 21, 2017 2:49 pm

Your fiancé's income as a first year attorney seems low, especially given her debt load. What are her longer term career plans? That may impact where you'd like to live. If she can get a big law job it would be a big resume boost for when she later sought a job in the federal govt. Honestly, just moving to a nicer place now and avoiding the stress of thinking about buying a home might be better so she can focus on networking and a job search. I don't want to sound dire but I've seen too many attorneys get stuck at low incomes in temp positions.

My husband and I rented a nice apartment and then an amazing apartment in DC until we had our daughter and then moved to Md a few years later when we purchased a home. We had 20% down and a healthy emergency fund when we did.
This also made getting and using a nanny much easier fwiw while we were in DC. If I was you I'd upgrade your rental and build up some cash while paying down those law school loans. No reason to live in a crappy apartment at 200k in income. I have nothing against tsp loans and we even took one for liquidity reason while we were doing renovations, but if I was you I'd hold off. Also, I know several people who lost money on D.C. real estate when they went to sell - and not because they bought in the crisis.

I'm curious what budget and type of housing you're aiming for. I'm also a fed but at my agency RIFs are a real concern, but as they are based on seniority I have some buffer (and a skill set that is marketable in the private sector).

te5486a
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Re: TSP Loan for First Time Homebuyer

Post by te5486a » Tue Mar 21, 2017 3:17 pm

Leemiller wrote:Your fiancé's income as a first year attorney seems low, especially given her debt load. What are her longer term career plans? That may impact where you'd like to live. If she can get a big law job it would be a big resume boost for when she later sought a job in the federal govt. Honestly, just moving to a nicer place now and avoiding the stress of thinking about buying a home might be better so she can focus on networking and a job search. I don't want to sound dire but I've seen too many attorneys get stuck at low incomes in temp positions.

My husband and I rented a nice apartment and then an amazing apartment in DC until we had our daughter and then moved to Md a few years later when we purchased a home. We had 20% down and a healthy emergency fund when we did.
This also made getting and using a nanny much easier fwiw while we were in DC. If I was you I'd upgrade your rental and build up some cash while paying down those law school loans. No reason to live in a crappy apartment at 200k in income. I have nothing against tsp loans and we even took one for liquidity reason while we were doing renovations, but if I was you I'd hold off. Also, I know several people who lost money on D.C. real estate when they went to sell - and not because they bought in the crisis.

I'm curious what budget and type of housing you're aiming for. I'm also a fed but at my agency RIFs are a real concern, but as they are based on seniority I have some buffer (and a skill set that is marketable in the private sector).
My fiancée suffers from an auto-immune disease, which developed right after graduating law school (her health has improved significantly). She missed out on some professional opportunities as a result and landed a position with a federal contractor after a period of unemployment. She has no aspirations for a "big law" position. A federal position considering the benefits and better work/life balance (compared to "big law") would have been ideal - she continues to look for other employment options both inside and outside the government. As for budget and type of housing, we anticipate purchasing something in the 500's either a row house or stand-alone in DC, MD, or VA - we're not interested in a condo or apartment at this time. I appreciate you sharing your personal experiences.

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wander
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Re: TSP Loan for First Time Homebuyer

Post by wander » Tue Mar 21, 2017 4:00 pm

If you can max out your TSP and make payment to the TSP loan, then I don't see any problem getting a loan from TSP at all.

deltaneutral83
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Re: TSP Loan for First Time Homebuyer

Post by deltaneutral83 » Tue Mar 21, 2017 4:06 pm

The money aspect is going to be analyzed to death here and you're going to get a lot of good info but I'd look more conceptually at the wedding date and the home buying and stretch them out. The former is a big enough adjustment. Time in between will give you more money and a better feel for things particularly if it's a general thought process and you don't have a target piece of real estate that is going for a an unbelievable price and must be acquired in x days or it will be gone.

kathyauburn
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Re: TSP Loan for First Time Homebuyer

Post by kathyauburn » Tue Mar 21, 2017 4:32 pm

A big NO on the TSP loan. Find another way.

usnaron
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Re: TSP Loan for First Time Homebuyer

Post by usnaron » Tue Mar 21, 2017 4:46 pm

I grew up in Alexandria, VA and am wondering if things have changed since I left....do you know of any good public schools in DC? As others have said, I would strongly consider waiting a few more years until you know where you want to buy. Once you have kids, your home location and size preferences WILL drastically change. Also, the high transaction costs associated with buying and selling houses and the illiquid nature of the investment, makes a bad home buying decision that much more painful down the road. Don't fall for the lines real estate agents love to use "renting is throwing money down the drain, while buying earns you equity." Unless you pay cash for the house, you are just renting money from the bank when you buy. The new York times rent vs. buy calculator is a pretty good tool to help you make a good decision too. I currently live in an expensive part of SOCAL and my rent is close to half of what an equivalent, zero down mortgage+taxes+HOA would be. I could afford to pay cash for the place I currently rent, but renting is a much better economic decision. :sharebeer

Natsdoc
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Re: TSP Loan for First Time Homebuyer

Post by Natsdoc » Tue Mar 21, 2017 6:36 pm

Are you a DOD employee or have a family member (including grandparents) that were in the military? If so would look at Navy Federal and/or USAA, as they have some 100% financing options without PMI.

Also - sounds like you may be living in my old apartment. :P

gclancer
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Re: TSP Loan for First Time Homebuyer

Post by gclancer » Tue Mar 21, 2017 7:13 pm

Ketawa wrote:TSP loans are useful for ensuring you can continue to max contributions every year. If you don't intend to max contributions, then you can theoretically make up some of the contributions in a future year.

As you pointed out, Roth contributions can be used to avoid taking a taxable distribution if you have to repay the loan suddenly.
I completely agree. People can be a tad rigid about employer plan loans. Not taking them is a good rule of thumb, but if you have enough financial sophistication to be on this forum you can easily construct scenarios where it makes complete sense to utilize this tool that is available to you, and to do so while assuming literally no risk (yes, even in the event of a job loss). TSP loans are obviously the best of the best due to favorable terms and maximum job security.

orca91
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Joined: Thu Mar 03, 2016 7:17 pm

Re: TSP Loan for First Time Homebuyer

Post by orca91 » Tue Mar 21, 2017 7:34 pm

Ketawa wrote:
orca91 wrote:How is taking a TSP loan out to be sure you can max. out TSP contributions a good idea? I really can't wrap my head around that one.
OP has a need for funds outside the TSP (home down payment). It's outside the means of most people to max TSP contributions every year and save $50K on top of it in a taxable account. Instead, the OP (and I) max TSP contributions every year, and take the funds out of the TSP when needed for the down payment. You can continue to max TSP contributions every year while repaying the loan.
Gotcha.... I thought you meant you did this regularly. And, that you took the loan just to max. out contributions.

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