Suze would not improve....

[lisettelovebug]

Ok. Here's the situation. We are going to be applying for a loan through rural development. We were looking at buying a house in one of two counties. It will depend on what we find and where. My husband had a judgement against him for a vehicle that was repossessed before I met him (2003). Well we have been paying on it since then and still we owe $7000. The first person I talked to said it was ok to have a judgement as long as we've been steadily paying on it for 6 months or more and that we also both needed a credit score of 640+. So, we were just concentrating on getting dh's score up 20 points for the one score - the others are over 640. Mine are well above for all 3. I was talking to the woman from the other county and they said there couldn't be a judgement.
So, we decided to take the money from dh's former employer's 401k. He was going to have to transfer to new employer's 401k anyways. He had over $7000 in there, that he had put in for 2 years. I know we will be penalized and we will be taxed, but I think it will be worth it to get this judgement off our back and be able to get a house. So we will be offering the lawyer $4500 and we will see if the bank will take it. Any leftover will be put on debt. His new employer does not match until a year - January - (his former didn't at all) - so he will be setting that up soon even though they do not match yet to start getting as much as we can in there as soon as possible.
I know some will think it's not a good idea, but we will be able to get a house and will be completely credit card free before November of this year (we will just have mortgage when we find a house, school loans that are in deferement at 2.85% interest, and car payment).

[Telephus44]

I think it's a good plan. I've never been the type to follow any "financial guru" religiously anyways.

Just remember than when you cash out the 401K, they will take 20% for federal tax and a 10% early withdrawal penalty out of the money right away (so for $7000 you'll only get a check for $4900). You may owe more or less federal taxes depending on your bracket, and you'll owe state taxes too, but you will need square that up at tax time. (Actually, you may have the option for them to take out state taxes or not at the time of cash out, I can't remember).

Another option to consider, if he rolls the $7K into his new employers 401K plan, is can he take a loan against it? It would give you immediate access to more cash, and you wouldn't be paying the tax penalty. I know not all 401k plans allow loans, and not all of them accept rollovers either. It would depend on the rules of his new 401K plan.