Don't Raid Your IRA
To Buy A New Home

Question: My husband and I want to buy a house, but we don't have any money for a down payment. We do, however, have a fairly substantial amount of money in an individual retirement account. Does it make sense to use IRA money to buy real estate?

Joyce: For several reasons, it's usually not a good idea to rob from your IRA to buy property. You can't really own your own home within an IRA. Also, you can't buy mortgaged real estate for investment within an IRA because the account can't borrow to buy property. This means that unless you plan to pay cash, you won't be able to use your IRA as a vehicle to make an investment real-estate purchase.

Your final alternative is to take money out of your IRA to use as a down payment on the home. But assuming you don't meet age requirements, you'll pay a stiff a penalty if you use this approach. Plus, unless you have a Roth IRA, you'll also have to pay taxes on the money you withdraw.

There is hope, however. Within the last month, quasi-governmental lenders Fannie Mae and Freddie Mac have begun offering zero-down mortgages to select buyers. If you have exemplary credit, you can qualify for one of these loans. You may also be able to finance some or all of the closing costs. These loans are available through many consumer lenders, so check with a good mortgage broker.

Keep Real-Estate Recessions in Perspective

Question: After an unsuccessful search in Orange County, Calif., my husband and I just opened escrow on a new home in Riverside County. An agent told us that home values in Riverside County dropped 30% the last time real estate took a downward turn. Is that true?

-- Jessica, Orange County, Calif.

Jessica: Yes, I'm afraid it's true. During the last real-estate recession, which occurred between 1991 and 1996, the value of property in some areas of the country -- including Riverside County -- dropped as much as 30% or more. Keep in mind, however, that nearly all areas -- including Orange County -- were affected; few locations escaped unscathed. It's important to keep this in perspective. In most areas, the real-estate recession occurred after nearly 45 years of steady price appreciation that saw values increase as much as 1,000%.

The real question is, are values going to continue upward, or are we looking at another real-estate recession? While no one knows for sure, all of the real-estate indicators are positive: low interest rates, a shortage of homes and developable land in many areas and a pent-up demand from the last recession. I think this is a great time to buy a home.

Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Irwin's Power Tips for Buying a Home for Less," (McGraw-Hill, 2000).

Submit your question about residential real-estate and home-improvement issues to homes.wsj.com.

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Joyce, San Jose, Calif.

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