Using 401(k) for Down Payment

Worried about down payment on your first home?  You may be able to tap into your 401(k) for your down payment. NOW is the perfect time to buy a house so it might be worth to touch your retirement money earlier than planned.

 

You can generally borrow up to half of your balance, up to a maximum of $50,000, from the account at any age and for any reason without tax or penalty.  The interest you pay on the loan, generally the prime rate plus one or two percentage points, goes back into your account.

 

Loans taken from 401(k)s must be paid within 5 years, but your employer may give you up to 15 years to repay a 401(k) loan if you are using the money to buy a home.  

 

There is one down side to borrowing from your 401(k). If you lose or leave your job, you generally have just 60 or 90 days to pay back the loan or it will be subjected to taxes, plus a 10% early withdrawal penalty if you're under 55 when you leave 

your job. (Source:www.realestate.msn.com)

 

In principle, it's not a good idea to tap into your retirement funds, since you'll need those funds when you get old.  But, borrowing from 401(k) can be the quickest, simplest, lowest-cost way to get the funds you need. Requesting for a 401(k) doesn't require credit checks and it doesn't affect your credit rating.  Getting your 401(k) loan can be just few clicks away and you can have your check on hand within a few days. 

In addition to that, it's easy to repay your loan. You can pay your loan earlier than scheduled without prepayment penalty. You can also pay it back through payroll deductions.

 

Just like any type of loan, you should always have a clear plan of paying on time or earlier. If you have any questions on your 401(k) loan, don't hesitate to call me.

Effects of Government Shutdown 2013 to Real Estate

What is the government shutdown's impact on real estate?  What happens from today onward? 

National Association of Home Builders Chief Economist David Crowe said, "Spike in mortgage interest rates, along with the paralysis in Washington that led to the government shutdown and uncertainty regarding the nation's debt limit, have caused builders and consumers to take pause".  He added, “However, interest rates remain near historic lows and we don’t expect the level of rates to have a major impact on sales and starts going forward. Once this government impasse is resolved we expect builder and consumer optimism will bounce back.” (Source: www.realtor.org)

According to realtor.com, Crowe's view seems to be the same as other industry observers.

The main impact of the government shutdown in the real estate industry was the difficulty in obtaining IRS 4506T (copy of tax returns) documents needed to close most borrowers' loans. 

Only USDA (United States Department of Agriculture) and Jumbo loans were greatly affected by the shutdown.  USDA loans were completely inaccessible to borrowers.  Jumbo loans, on the other hand, were requiring documentation from IRS.  But this should be back to normal within the next few weeks.  

Many lenders remained operational through the shutdown and still processing FHA loans.  There might be a slight backlog of approvals on the FHA's end, but there shouldn't be any significant delays.  

"Best advice is to buy a home at the current lower prices and historically low rates.  Rates will rise and property values will follow due to limited supply" advised Cal Haupt, Chief Executive Officer at Georgia-based Southeast Mortgage.

Government shutdown is the topic of the decade. Nobody really knows what will happen in the future.  Let's just keep our fingers crossed and hope for the best!

HOW TO SAVE ON CLOSING COSTS

Buying a home can already put a hole in your pocket and  paying for the closing costs can also be equally painful.  These fees must be paid (no matter what) to the lenders and other third parties such as title/escrow and insurance.

There are 2 types of closing costs. They are called recurring closing costs and non-recurring closing costs. Recurring closing costs are charges that must be paid more than once. On the other hand, non-recurring closing costs are once in a life time charges.

If you want to reduce the closing costs follow these advice:

1. Ask the seller if he/she could cover part of the closing costs as part of the transactions. The lowest amount that the seller can cover is 2% of the purchase price and the highest amount allowed is 9%.
2. Shop for closing costs. When looking for a lender, also make sure to look at their closing fee charges. Different lenders charge different closing fees. So, search for a lender with low rate and low fees - this could give you HUGE savings.
3. Read the contract carefully. Some lenders charge junk fees - and you don't want to pay for those.
4. IF you close towards the end of the month, you can reduce the number of days of per diem interest due at closing. However, this can be a busy time for lenders and they might not close in time.

If you have more questions on closing costs, feel free to contact me.

FHA Needs $1.7 Billion Bailout

FHA (Federal Housing Administration), provider of mortgage insurance of low down payment loans, is asking the Congress for $1.7 Billion from the Treasury to stabilize its long-term finances and cover potential losses from loans they insured from 2007 - 2009.  FHA is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.

The amount is higher than the estimate since it is now insuring fewer loans than before. Additionally, Obama administration expected the bailout since April and has proposed $943 million budget for bailout fund by Sept 30, but the requested bailout was almost double the expected.

This is the first time since the agency's inception that it has required money from the government for its Mutual Mortgage Insurance Fund (MMIF). However, this bailout is so much less than the nearly $200 billion that the mortgage giants Fannie Mae and Freddie Mac required to stay in business during the housing bust.

Fannie Mae and Freddie Mac have recently posted record profits.

FHA Commissioner Carol Galante stressed that the agency does not need to pay claims at this point. It still has more than $30 billion in reserves. However, the law requires the agency to have enough reserves to pay off all claims over the next 30 years.

Big percentage of FHA losses (around $70 billion), were from loans originated from 2007 to 2009 and from its reverse programs.

For any question, please don't hesitate to contact me.

Ways to Fund Your Down Payment and Closing Costs

Afraid that you won't be able to find the funds you need for your down payment or the closing costs to buy a home? Think again! There just might be some ways to find it.

You can buy a home with a 3.5% down payment through FHA (Federal Housing Administration) loan.  For conventional loan, you are required to have at least 5% down on the purchase of a home.

There are at least 5 different ways you can come up with the down payment and closing costs so you can buy a home:

1. Gift Money

Gift of funds or gift money is a monetary gift that is given by a relative or a close friend. He/she must sign a gift letter, provide a copy of a bank statement showing that he/she is financially capable of gifting the down payment money and he/she must show proof that the funds came from and has been withdrawn from his or her account and deposited to your account.

2. Loan from 401 (k) or Retirement Fund

You can borrow funds from your 401(k).  If you borrow, just keep in mind that it will be considered a loan and the lender will include it in your total debt obligations and include the total monthly repayments in your total debt-to-income ratio. 

3.  Sale of a Personal Asset

You can sell your car, stamp or coin collection, jewelry, art or an RV or any other assets you may have and use the proceeds from the sale to purchase your new home.  Take note, that you need to provide proof of the transactions. 

4.  Trust Funds, Lottery Winnings etc.

If you receive money from your trust funds, lottery wins or other means, you can use this money as a down payment and/or closing costs on the purchase of a home.

Again, all paper trails must be presented.

5.  Loans Made Against Assets

If you can secure your loan with an asset, then there's no problem in obtaining a loan as long as use these assets to secure your loan.  These assets can include stocks, bonds, mutual funds and real estate (separate from the property being purchased).

Funds borrowed from cash value of life insurance policies can also be used for down payment and closing costs. 

Consult with a mortgage lender if you will be receiving any funds to help you with the down payment and/or closing costs on the purchase of a home.  This will save you a HUGE amount of time and headache!