Tag Archive for first time home buyer loans

09 Apr 2014
Down Payment Assistance • 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.

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01 Apr 2014
Down Payment Assistance

New Down Payment Assistance for First Time Home Buyers!

Down payment assistance for first time home buyers!  There is a brand new down payment assistance program offered in Washington State.  It allows for up to 5% of the purchase price in assistance.  So if you were purchasing your first home for $300,000, you could potentially receive up to $15,000!

What if I also need money for closing costs?  The great part about this new program is the assistance money can be used for BOTH down payment and closing costs.  Depending on your situation and purchase price, you may still need to come up with one or two thousand dollars, but this is about as close as you’ll get to a zero down first time home buyer loan.

So do I need to REPAY the down payment assistance?  NO!  In the past, most of our down payment assistance programs have esentially been second loans with subsequent repayment terms.  HOWEVER, this new down payment assistance program is a GRANT, which means it does not have to be repaid!

How long does the program last?  It is a pilot program, so we don’t have a definitive answer as to how long it will be around.  But in the past, whenever we have seen a first time home buyer program with these types of terms, the program typically doesn’t last very long.  So if you want to take advantage, you should act fast!

How do I gain access to this program?  In order to take advantage of this program, you need to attend one of our workshops where you will recieve a state issued certificate veryfying that you have went through the education process.  Our state funded non-profit wants to make sure you are make educated decisions as a first time home buyer.

Don’t make the biggest financial decision of your life without getting educated!  If you’d like to gather more information about this new down payment assistance program, 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.

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17 Mar 2014
Real Estate

What if I Can’t Afford What I Want?

What if I can’t afford what I want?  As prices continue to rise, we hear this more and more from our first time home buyers.  You may want a certain number of bedrooms and bathrooms, but your price range may make it tough to accomplish this in the neighborhood you want to be in.

So what are my alternatives?  The first and maybe easiest way to accomplish this it to look at other property types.  For instance, if you are looking for a single family home but feel like they’re out of your price range, you could start looking at townhouses or condos.Two lawn chairs

But I’ve always wanted a yard.  We realize for some first time home buyers, a single family home is all they’re willing to consider.  The next possibility is moving outside your specific geographic area to see if outlying areas are more affordable.

But we have to stay in our existing school district!  Sometimes first time home buyers are absolutely NOT willing to look outside a specific area due to school zoning or other reasons.  A third option is considering a property that needs some cosmetic updates.

As long as I get the number of bedrooms/bathrooms I want.  It may even make sense to look at a home with LESS bedrooms and baths, as long as it has the potential to add these things later.  Many of our first time home buyers are considering starting families but don’t have them yet.  So a strategy could be looking at homes with unfinished basements, where you could add bedrooms and baths later.  The point is, when buying your first home it may make sense to think outside the box.

Don’t make the biggest financial decision of your life without getting educated!  If you’d like to learn more about the home buying process, please go to our Calendar/Reservations page and sign up for one of our FREE First Time Home Buyer workshops.

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04 Mar 2014
Mortgage

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.

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12 Feb 2014
Mortgage

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.

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