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anyone know about mortgage stuff?

Discussion in 'Off-Topic Discussion' started by nd, May 13, 2010.

  1. May 13, 2010 at 2:34 PM
    #1
    nd

    nd [OP] Radical Town. It's a hell of a place!

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    ok so i'm looking at houses. at some point i heard/read that if you were a first time home buyer you could roll over money from your 401k to use as a down payment without paying penalties or taxes since it is considered an investment. i have no idea if thats true or not but i figured somone here would be able to tell me. anybody know?
     
  2. May 13, 2010 at 2:37 PM
    #2
    jrider636

    jrider636 Well-Known Member

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    not sure about that but if u havn't bought a house in the last 3 years u qualify for the obama $8,000 tax credit and u can use that as ur down payment
     
  3. May 13, 2010 at 2:39 PM
    #3
    2009Silver

    2009Silver Well-Known Member

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    Whether you take funds from a 401K to make a down payment should depend on whether it costs more or less than the alternatives, which are to pay for mortgage insurance or for a second mortgage. Account should also be taken of the risks inherent in these different options.

    As an illustration, you buy a house for $100,000 and have enough cash to pay only $5,000 down. Lenders will advance only $80,000 on a first mortgage without mortgage insurance. One source for the additional $15,000 you need is your 401K account. A second source is your first mortgage lender, who will add another $15,000 to your first mortgage, provided you purchase mortgage insurance on the total loan of $95,000. A third option is to borrow $15,000 on a second mortgage, from the same lender or from a different lender.

    The general rule is that money in 401K plans stays there until the holder retires, but the IRS allows "hardship withdrawals". One acceptable hardship is making a down payment in connection with purchase of your primary residence.

    A withdrawal is very costly, however. The cost is the earnings you forgo on the money withdrawn, plus taxes and penalties on the amount withdrawn, which must be paid in the year of withdrawal. The taxes and penalties are a crusher, so avoid withdrawals if at all possible.

    A far better approach is to borrow against your account, assuming your employer permits this. You pay interest on the loan, but the interest goes back into your account, as an offset to the earnings you forgo. The money you receive is not taxable, so long as you pay it back.

    The cost of borrowing against your 401K is only the earnings foregone. (The interest rate you pay the 401K account is irrelevant, since that goes from one pocket to another). If your fund has been earning 6%, for example, that is the cost of the loan to you. You will no longer be earning 6% on the money you take out as a loan. If you are a long way from retirement, you can ignore taxes because they are deferred until you retire.

    The major risk in borrowing against your 401K is that if you lose your job, or change employers, you must pay back the loan in full within a short period, often 60 days. If you don’t, it is treated as a withdrawal and subjected to the same taxes and penalties. 401K accounts can usually be rolled over into 401K accounts at a new employer, or into an IRA, without triggering tax payments or penalties, but loans from a 401K cannot be rolled over.
     
  4. May 13, 2010 at 2:46 PM
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    2009Silver

    2009Silver Well-Known Member

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    :facepalm:

    It doesn't work like that.... They don't give you $8,000 and say here, go buy a house...

    Also, It is done as of April 30th 2010... If you didn't get an accepted offer by then, you no longer qualify...
     
  5. May 13, 2010 at 2:47 PM
    #5
    JDMcompliant

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    Wow, great info. I am also on the market for buying a home and I do have a large chuck of cash in my 401K...too bad I can't find a house in San Diego for $100K to save my life :p I'm going for 300-400K...
     
  6. May 13, 2010 at 2:58 PM
    #6
    scocar

    scocar Scouting the perimeter for weakness

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    Back to square one after the 2001. So...
    Yeah, it can get a little goofy with 401Ks. The other thing to consider is are you fully vested in your 401K? Have you had it for 5 years? If your company matches your contributions, you are often not fully vested in their matching amount until you have been contributing to it for 5 years, so you may want to see if that is a factor for you. It may affect how much you actually have to play with. But I am guessing 2009silver may know that off the top of his huge 401K-filled head...:eek:

    If you have an IRA, you can take money out of that pretty easily for first home purchase. I took out 10K (the max) in 2004. Not sure what the current rules are...but you can search for some of this struff in IRS publications on line (yeah, I know, fun).
     
  7. May 13, 2010 at 3:03 PM
    #7
    nd

    nd [OP] Radical Town. It's a hell of a place!

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    awesome info, thanks for the detailed response. as for mortgage insurance, i hate people so i am only looking for houses in rural areas, which qualify for 100% financing wiht no mortgage insurance. i dont think i want to borrow against my 401k. i was only interested if say, i could take 5 grand out, and put that 5k directly into the down payment and not pay taxes, penalties or any other kind of fee. if that is not possible then i'm not interested. i've got enough in my checking and savings to put down 5k already, but if possible i was gonna add my 401k funds on top of that to help keep my monthly payments low. i figure at my age i wouldnt be touching the money for a long time anyway so if i could take a little i was gonna. oh well, either way i'm good to go i'm jsut looking for ways to keep my montly payment as low as possible. i always pay over the minimum amount anyway, but i like it to be voluntary and not required, just in case i have a bad month or lose my job or something
     
  8. May 13, 2010 at 3:11 PM
    #8
    nd

    nd [OP] Radical Town. It's a hell of a place!

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    holy shit. how can a bankrupt state still have such high housing prices? thank God i live in a reasonable area. the house i'm looking at is on teh market at 150k (overpriced, i wont pay over 133k) but i'm sure out there it would be in the 300 or 400 range

    i actually intentionally waited for that to be over. here's my reasoning. the tax credit was proposed to help buyers but in actuality helped the seller. it created an inflated prospective buyer pool. people who normally would not be in the market go "well if uncle sam will give me 8k in cash on my tax return, hell yeah i'll buy a house". so the shitty market temporarily recovered due to that influx of buyers. now that it has expired that market has shrunk, meaning its just a matter of time before the housing market drops again. driving prices even lower and leaving a surplus of badass houses on the market. i have no hard evidence to back this theory up, but using the few brain cells i have left it seemed to make sense at the time.
     
  9. May 13, 2010 at 3:13 PM
    #9
    nd

    nd [OP] Radical Town. It's a hell of a place!

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    i have two 401k's. i have a high risk/yield one with metlife from working with the state which hasn't had anything put into it for years, and i have a moderate yield acct with my current employer, which has only been active for about 3.5 years.
     
  10. May 13, 2010 at 4:23 PM
    #10
    jhodge83

    jhodge83 Any dog under 50# is a cat and cats are useless... Moderator

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    wat?
    i just dropped 190k on mine down here...freakin rip off...but out in cali they would get a new construction 2500 sq ft, 2 story, 2 car garage for that :D
     
  11. May 13, 2010 at 6:10 PM
    #11
    scocar

    scocar Scouting the perimeter for weakness

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    Here's a thought. You should be able to roll over the old 401K into an IRA. From the IRA, you can withdraw 10K for a first-time house purchase...dood...

    The other thing to consider (I saw in an earlier reponse from you) is that the more you put in a 401k when you are younger (as opposed ot putting in the minimum amount, if I understood you correctly), the greater the amount of time you have to accumlate compound interest on it before you retire. This is a key basis of building wealth. Compound interest over time is the secret. I know it seems like retirement is an eternity in the future, but trust me, this will make up for all the peaks and valleys in the market that will come your way before then...once time is gone, it is gone. Then you die. :eek:
     
  12. May 13, 2010 at 6:38 PM
    #12
    nd

    nd [OP] Radical Town. It's a hell of a place!

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    good call on the IRA. i may look into that.

    i think you misunderstood what i meant about puttin in the minimum. i put in the maximum matched amount in my 401k. when i mentioned minimums that was for monthly payments (truck loan, student loans etc...). i like to get the payments as low as possible but i always pay more. for example my truck loan is $425 per month but i pay $500 to $1000, but i like to get them as low as possible so if i ever have financial trouble i can just pay the minimum. i'm all about throwing money at retirement, if at all possible i want to retire early
     
  13. May 13, 2010 at 6:43 PM
    #13
    scocar

    scocar Scouting the perimeter for weakness

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    Ah, right on. Yeah, it sounded like you generally knew what you were doing...
     
  14. May 13, 2010 at 8:45 PM
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    itsjustaliftedXR

    itsjustaliftedXR Well-Known Member

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    I'm a realtor in Long Beach and right now is an awesome time to buy. The federal tax credit of $8000 is gone, but the state of California still has a $10,000 credit to first time home buyers that will be in the form of a tax credit over the next 3 yrs. Also, interest rates are so low that if you can, I highly recommmend getting in touch with an agent in your area who can show you what's out there and get you in touch with a lender. Any question, just shoot me a pm. I love talking real estate stuff and would be glad to help with any information I can.
     
  15. May 13, 2010 at 9:25 PM
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    JDMcompliant

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    Thanks, yeah I'm looking to buy now because I'm aware of the state of the market. I was in a strong position to buy and was looking at homes in the area until my dad lost his job. I decided to stay with my parents and pay for their house in the meantime, and I bought a Tacoma. Kinda stuck with truck payments for awhile :(
     
  16. May 13, 2010 at 9:41 PM
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    itsjustaliftedXR

    itsjustaliftedXR Well-Known Member

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    Im sorry to hear about your dad, I've heard too many stories of people getting laid off that are just gut wrenching. It's a good thing that you're doing for them and the good thing is, real estate is not as volatile as the stock market. Best thing you can do is continue to make your payments on time and keep your credit squeaky clean. A conventional lender looks for 3 open lines of credit for applicants, includes car loan and at least 2 other credit cards. So if you have established credit, just make sure to keep making payments on time to keep your score up so that when you're ready to buy, you'll have options.

    To the OP, look into your state's incentives. Before Apr 30th, with the federal and state incentives, California first time home buyers were looking at $18,000 in tax credit over the next 3 yrs. It was an amazing deal and I'd be surpised if other states weren't doing something similar.
     
  17. May 17, 2010 at 9:46 AM
    #17
    nd

    nd [OP] Radical Town. It's a hell of a place!

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    you are only invited if you show up with half a dozen hotties in thigh high's. otherwise, you can just keep practicing your sword moves in your back yard :D
     
  18. May 17, 2010 at 2:34 PM
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    JDMcompliant

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    man...that reminds me of a nickelback video i saw this morning when i woke up. i know...i know...it's nickelback, but i promise you the video is worth it. (watch it on mute if you have to.)

    http://www.youtube.com/watch?v=YbP1K-bQB6g
     
  19. May 17, 2010 at 2:59 PM
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    Richman21

    Richman21 I think therefore I'm a Democrat

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