Archive for Mortgage

Should First Time Home Buyers Borrow From Their 401K?

Should first time home buyers borrow their down payment from their 401K?  Many first time home buyers struggle to come up with a down payment to buy their first home.  Others have the minimum down payment, but would prefer to have a LARGER down payment to avoid mortgage insurance.  Borrowing against a 401K or other retirement plan may be a good option.

Doesn’t it make more sense to get down payment assistance?  Most down payment assistance programs are determined by your annual income.  Many of our first time home buyers find that they make too much money to be eligible to receive down payment assistance from the state.

But don’t you have to pay high fees for liquidating money from your retirement account?
  Generally speaking yes, so you want to BORROW AGAINST the account, not liquidate funds.  This will help you avoid penalties from the IRS for early withdraw.  Usually the money is paid back with interest, but the interest goes back into your account.  So essentially you’re acting like your own bank in this instance.

Would it be better to just wait and save for a down payment?  This depends on many different variables.  Some things to consider are: Will housing values and interest rates rise in the near future?  How long will it take me to save a down payment?  If it won’t take you any time at all to save, then you Piggy bank 401K and dollarprobably won’t be as concerned with rises in the market.  But if it may take you a year OR MORE to save, then borrowing from your 401K may be a really good alternative.

Are their any downsides to borrowing against my 401K?
  Not usually.  The Federal Government has allowed this type of transaction for first time home buyers to support home ownership across the country.  However, this doesn’t mean that your specific company doesn’t have other criteria you may need to meet to borrow against your retirement account.  So it is important to get all the details from your Human Resources department before making a final decision.

Don’t make the biggest decision of your life without getting educated!
  If you would like to find out more about the home buying process in general, please go to our Calendar/Reservations page and sign up for one of our FREE First Time Home Buyer/Down Payment Assistance workshops.


Do I Really Need a Credit Approval?

Do first time home buyers really need a credit approval?  A credit approval is so much more than a prequalification or even a preapproval.  It puts first time home buyers in a much stronger position, as it verifies for the seller that you can get a loan, and also close in a timely fashion.

Why isn’t a prequalification good enough?
  A prequalification can be issued after a quick phone conversation.  So it doesn’t give the seller any assurance that you can get a loan, as the loan officer hasn’t actually reviewed any of your documentation.

What about a preapproval?  Preapprovals USED to be adequate for first time home buyers.  This is when you submit all your income documentation to your loan officer for their review.  In this case they aren’t getting approval from underwriting, they’re just assuming underwriting should be ok with everything they’ve already reviewed.  Now a days preapprovals may not be enough.

So how is a credit approval different?  With a credit approval, the loan officer underwritercollects all your documentation, and then submits it to underwriting for a FULL approval.  This makes the seller confident that you can obtain the loan, and it also makes it so you can close the loan quicker since half the work has already been done.  Sellers usually like to receive their money ASAP!

But that sounds like a lot more work for me!
  A full credit approval may be more work up front, but it’s work you’re eventually going to have to do anyways.  It also doesn’t cost you anything!  So if you can do something for FREE that puts you in a stronger position, why not do it?!?

Don’t make the biggest financial decision of your life without getting educated!
  If you’d like more information about the credit approval process or the home buying process in general, please go to our Calendar/Reservations page and sign up for one of our FREE workshops.


What is the Mortgage Credit Certificate?

What is the Mortgage Credit Certificate?  The Mortgage Credit Certificate (MCC) is a dollar for dollar tax credit for first time home buyers.  The credit relates to the mortgage interest paid on a homeowner’s property over the life of their loan, as long as it remains owner occupied.

How does this differ from the standard interest deduction?  The first 20% of interest you pay on your mortgage will come back to you in a dollar for dollar tax credit.  The remaining 80% of interest paid will still be used to write down your income on your taxes as it normally does with owner occupied properties.

Can you give me an example?  Let’s pretend the Johnsons are first time home buyers and purchase their first home for $275,000.  We’ll also assume they will utilized FHA financing with a down payment of 3.5%, a fixed interest rate of 4.25%, and are in a 20% tax bracket.

Year #1…Total interest paid = $11,387
Annual property taxes = $2,750
Mortgage insurance paid = $3,619
Total paid in = $17,756

Annual tax savings = $3,551.20 or $295.93 per month

Annual refund with MCC = $5,372.80 or $447.73 per month

Does the MCC last for the life of my loan?  The MCC DOES last for the life of your loan as long as you’re occupying the property.  However, keep in mind that as time progresses, though your monthly mortgage payment may stay the same, more of your payment will go towards principle.  Therefore, your tax savings will slowly decrease because you are paying less and less interest every year.

The MCC sounds like a no brainer for first time home buyers!  The MCC is a fantastic program, but there are parameters you have to meet, as well as repercussions if you stop occupying the property.  Don’t make a decision without getting educated first!  If you’d like to learn more about the MCC go to our Calendar/Reservations page and sign up for our FREE First Time Home Buyer.


What are USDA Loans?

What is a USDA loan anyway?  USDA loans are specifically designed for purchasing homes in rural areas.  Some of the areas in Western Washington that are considered rural by USDA guidelines may surprise you.  In many cases first time home buyers looking for the suburban lifestyle are finding themselves purchasing homes in areas that can utilize USDA financing.

So what are some benefits of using a USDA loan?  Well, USDA’s monthly mortgage insurance is only one third of what FHA’s monthly mortgage insurance premium is.  Also, the interest rate for a 30 year fixed loan is lower with USDA than it is with standard conventional financing.  Another huge benefit for many first time home buyers is that with USDA, you can secure that low rate and the low monthly mortgage insurance with absolutely NO down-payment.  That’s right $0 down, so you can keep more money in your pocket!

What else do I need to know about the USDA loan?  First off, there IS an up-front Mortgage insurance premium that will be added to the loan amount of your 30 year fixed loan.  This up-front mortgage insurance is 15% higher than the FHA’s premium.  The next thing to know is that the monthly mortgage insurance, like FHA, will last for the life of the loan.  An additional major factor to consider is that there is a household income limitation.  Bottom line, there are a lot of different factors to consider.

Don’t make one of the biggest financial decisions of your life without getting educated!  If you would like to gather more information about down payment options or the first time home buying process in general, please go to our Calendar/Reservations page and sign up for one of our FREE First Time Home Buyer workshops.


Minimum Down Payment Change Ahead


What is the minimum required down payment anyway? If you have your financing plan structured with your lender before November 16th 2013, on a conventional loan the minimum is 3% of the purchase price.  That means a $10,500 minimum down-payment for a $350,000 home.  If you don’t have your financing structured with a diligent professional lender before that date, your minimum down payment for a conventional loan will be 5% ($17,500 for that same purchase price).

How do I get my financing plan structured to avoid the minimum going up on me?  In order to ‘lock in’ the possibility of a 3% down-payment you will need to work closely with a lender who will secure something called “DU findings” from Fannie Mae on your behalf.  He/she will do this by gathering all of the pertinent information and documentation, pulling your credit report, and putting your exact scenario into Fannie Mae’s system.  If you have an acceptable scenario for a 3% down-payment before November 16th and make your way into Fannie Mae’s system, you will be able to continue shopping for houses past that date and be ‘locked in’ to the 3% down-payment structure.

Are there any other options for keeping my minimum down payment as low as possible?  The two alternative and most readily available options in keeping your down payment as low as possible will be securing FHA financing, or utilizing a down payment assistance program such as Home Advantage.  Both of which have advantages and disadvantages when compared to the standard conventional financing structure.  To learn more about these programs view: FHA vs. Conventional and Home Advantage DPA.

Don’t make one of the biggest financial decisions of your life without getting educated!  If you would like to gather more information about down payment options or the home buying process in general, please go to our Calendar/Reservations page and sign up for one of our FREE First Time Home Buyer workshops.