I have a house in Ohio that I have rented for several years and need to sell. It is clear that the house will sell for less than I paid for it, and I would need to bring about $20,000 to closing (this includes the shortfall and realtor commission).

I can cover this if I take some money out of my 401(k). I'm 30 years old and have many years left to retirement. It would take around half of my total 401(k) balance.

Question is -- is it better to take the credit hit and do a short sale, or to try to cover with any cash I can come up with? It's difficult to quantify the impact of 7 years of bad credit, but on the surface it sounds like a short sale should be avoided if at all possible.

Thoughts? Thanks in advance.

Depends, do you have an plans in the next 7 years to purchase a house, car or major purchase where having a worse score could hurt you?

I agree if you don't intend on needing major credit in the next 7 years I would take the credit hit.

It might just be better to go into foreclosure with the house. I know this might be a liable option for you, but it is not always bad to go into foreclosure to free up some money for your current situation.

I would take the credit hit. After 7 years, the housing market will have bottomed and you will be eligible for a cheaper home

I'm gonna have to disagree with everyone here. 7 years is a long time and you never know what position you will be in even 3-5 years down the road.

I would suggest trying to keep the property at all costs. Even if it is costing you money each month to keep it afloat.

Buy yourself some time and you always have you 401k funds to fall back on. Just remember any money taken out of your 401k is taxable and you will have to pay in on that come tax season.

good luck....