Borrowing or withdrawing for Downpayment.

[MINE!!]

Does anyone know if someone can withdraw money from their pension to use as a downpayment for a house? Or do we have to borrow from it and pay it back? Or can we just withdrawl.. or can we do neither?

Also... what is a 80 10 10?

 

[Kaleigh]

MINE I just asked my husband the answer is yes, but usually income tax plus 10%. Doesn't make sense to moi, but that was his response. HTH, Lisa

ETA: He has never heard of 80 10 10.

 

[Tacori E-ring]

Most lenders will only lend you 80% of the value of the house. When we bought our house we wanted to do 0% down so we got an 80/20. Basically that means we had two notes on our house. The 20% was at a MUCH higher interest rate but it didn''t really matter because it is for such a small amount. There is such a thing called PMI (private morgage tax) if you go over 80% but like the higher rate on the second loan if you can''t or don''t want to put down a down payment than it is a good solution. You can always refinance (most banks make you wait a year for a "seasoned" loan) but often if you improve the value of the house or bought a house below market value you can get it on one note. HTH! and GOOD LUCK!

 

[Tacori E-ring]

Date: 1/23/2006 10:28:19 PM
Author: kaleigh
MINE I just asked my husband the answer is yes, but usually income tax plus 10%. Doesn''t make sense to moi, but that was his response. HTH, Lisa

ETA: He has never heard of 80 10 10.

My guess is MINE means an 80/20. If there is such a thing called 80/10/10 I don''t know what it is but my post explains the 80/20.

 

[belle]

as kaleigh said, you can withdraw from your pension for a downpayment, but you will be charged when you withdraw AND if the downpayment is not for a first home purchase, you will be assessed a 10% early withdrawl penalty by the irs.

 

[MINE!!]

OKay... I guess I got the 80/20 thing wrong...

Thanks so much Kaleigh and Tacori... OK
Thanks belle.. so as long as this is a first time home buyer than it is ok? Now does withdrawing or borrown from pension mean that we have to pay back on a loan (pension) and does this apply to people who are state employees who are using a pension not a 401K.


We found this really great house that we want (lets put it this way... I want).... Okay... So we can borrow from his pension and have about a 20% down payment. But the realtor said that we could do something where we get a 10% loan, a 80% loan put down 10%. Does this make any sense?

We have NO friggin clue what we are doing here. Now... how do we find out how much we qualify for? Should we go to our bank or to our credit union? What should we ask them? Or should we try some of these lending tree things?

 

[Tacori E-ring]

Oh I see what you are saying. Basically it is the same as the 80/20 but if you have 10% to put down than you would only need your second note to cover 10%. Honestly I know nothing about taking out of your DH pension but the thought of that makes me nervous. I rather have two notes on my house than messing with my retirement fund. Just my 2 cents.

 

[monarch64]

Mine, I would start with your bank and see what you can qualify for. If not your bank, do either of you know anyone (think old friends/high school friends/acquaintances) in real estate, banking, loans, etc? Just knowing a friend who can advise you (hopefully for free) is a good thing to have in this situation. Also, there are tons of internet sites you can look into and research what type of loan could work for you, although I''m sure you know that already. Now that you have found your dream house, I know the anxiety is setting in and you want to have all the answers fast. We went through the same thing with our house a couple years ago. Just know that there are so many homes available on a daily basis today...everyone and their brother is buying and selling, so while you may think you''ve found the perfect home and your heart is set on it, another, better home could be just around the corner in another month. Best bet is to do some more research and keep trying...I am babbling, but again, I''ve been through this. It is a gut-wrenching, pulling your hair out time, much like buying the perfect diamond, LOL!

Have you been on any "go-sees" with your realtor? Do you have a realtor? I know I''m not doing even an adequate job of answering your question to begin with, but some background would be nice.

My husband was able to get a loan from his boss for our down payment. He had a bonus check coming for about that amount and got his boss to pre-pay it for him, so to speak, until we were able to pay him back. Granted, hubby works for a small company and is tight with his boss, but I don''t know the specifics of your situation. Just a thought. (We didn''t pay back any interest on the "loan.")

 

[Waited2Long]

Cashing it out is one option, assuming the plan itself allows him to, and with the taxes/pentalty mentioned. You may also be able to borrow against the pension, depending on the lender and the pension details. It is simply collateral that reduces the lender''s risk and thus secures you a lower interest rate and/or higher loan amount. That way you don''t lose the benefits of tax-free compounding, and you don''t have to pay the 10% penalty, plus the higher bracket taxes AND you get to write off the interest from the loan, whereas if you pay straight out, you write off nothing.

 

[Mara]

An 80/10/10 means 80% is your first loan, 10% is your 2nd loan (or a HELOC) and the last 10% is your cash/dp.

You can also do an 80/20/0 which is 80% first and 20% second loan and 0% meaning no down payment.

Traditional old school is 80/20 which is 80% first and 20% as your down.

OR an 80/15/5 which can be more common in super expensive areas around here where people can only come up with 5% of a down on say a $500k condo or something.

What do you need to do? Start researching online. I did all my research online on all the loan options and really learned alot. Figured out what questions to ask. Figured out enough that our broker preferred to talk to Greg instead of me because I would ask him questions that he didn't want to answer...hahaa.

We also shopped around and had a few loan brokers working for us against each other to get us the best rate. In the end we went with eLoan online which was SOOO easy actually and they put everything online for you to review etc. And they got us the best rates and they also do not charge commission, so there is something like an $8k savings on the final closing costs through eLoan vs if you go with a local broker. That was huge for us and combined with the better rates it was perfect.

We also went with a no-prepay penalty in case we moved out and sold off the loan or paid off the loan early....and that also lets us refi as soon as we want, we refinanced our 2nd a few months ago.

 

[aljdewey]

Date: 1/23/2006 10:41:18 PM
Author: MINE!!
OKay... I guess I got the 80/20 thing wrong...

Thanks so much Kaleigh and Tacori... OK
Thanks belle.. so as long as this is a first time home buyer than it is ok? Now does withdrawing or borrown from pension mean that we have to pay back on a loan (pension) and does this apply to people who are state employees who are using a pension not a 401K.


We found this really great house that we want (lets put it this way... I want).... Okay... So we can borrow from his pension and have about a 20% down payment. But the realtor said that we could do something where we get a 10% loan, a 80% loan put down 10%. Does this make any sense?

We have NO friggin clue what we are doing here. Now... how do we find out how much we qualify for? Should we go to our bank or to our credit union? What should we ask them? Or should we try some of these lending tree things?

Ok, lots of questions.

Most lenders don't like they loan-to-value (LTV) ratio to be more than 80%....anything lower than 80% is lower or acceptable risk to them; anything higher is more risk. Some sub-prime lenders (high-risk lenders) will loan up to 95% of the purchase price of the house....BUT, it usually means a higher interest rate and more cost to you in points up front.

So, using figures, let's say the house is $100K. An 80/20 loan means you will pay 20% of the purchase price as a down payment and finance the other 80%....in this case, $20k down and $80K financed on the mortgage (plus points or ohter costs, etc). An 80/20 can also mean 2 loans that finance the entire purchase price of the house, but the interest rates and fees are extremely high on those....not a great option unless you have stellar credit.

An 80/10/10 loan is not the same. With an 80/10/10, you still finance a PRIMARY mortgage for 80% (or $80K), but instead of putting 20% down, you put down 10% ($10K) and take a second loan for the ohter 10%. This is called a second, or sometimes a HELOC (Home equity line of credit). This is the type of loan my husband and I took out for our house.

Similarly, and 80/15/5 means you take the primary mortgage for the 80%, take a second mortage for 15% (15K), and put down the remaining 5% ($5K).

In all models, the primary mortgage doesn't exceed 80%. If you can qualify for any of them, you want those over a loan that is 95/5 or 90/10. In those cases, the 90/95 is the percentage of the house on the primary mortgage, and you take a higher interest rate as a penality for higher risk. also, if your primary is more than 80% of the purchase price, you'll be required to carry PMI - it's an insurance that protects the lender if you default. This insurance can add $100-200 a month to the cost of your mortgage!

What you need to do is get in touch with a mortgage broker or lender and ask them what you will qualify for. You're going to have to give them information...your last W2 forms, your last few months worth of bank statements, and copies of recent pay stubs. (there are loans that require no documentation, but like high value loans, they are sub-prime and cost a lot more. You're better off going with documentation if you can). Tell them you want an 80/10/10 or an 80/15/5 and see if you can qualify for it. They will let you know what you can do. There is a slight advantage in the interest rate to the 80/10/10 over the 80/15/5....becuase you're putting more down.

Regarding withdrawals......not sure about pensions, and especially not sure about state-funded pensions. I know that for 401K plans where employer contributes (and I think for self-funded ones, too), you can take a hardship withdrawal, but it's still subject to 10% early withdrawal penalty even for 1st time home-buyers. The 401K limits withdrawals without penalty. If you were in danger of foreclosure, that would be an event that you could withdraw without penalty for.

Do you have a Roth IRA? If you do, you can make a withdrawal of up to $10K for a first-time home purchase without penalty.

On the pension, the best thing you can do it talk to your plan administrator. Tell them what you're trying to do, and ask them what your options are.

BIG things to look for when comparing loan offers: Look at the fees; the pricing may look better from one lender, but if their fees are higher, it actually can cost you MORE out of pocket up front. Ask them to itemize EVERY fee that will be due at close, and compare those closely to other offers.

As Mara noted, KEY is to get a loan that doesn't penalize you for early repayment.

 

[Mara]

Oh and to add to what Alj noted re: asking for a list of costs, you can ask the brokers to give you a good faith estimate (GFE) which lists out their terms, aka what rates they think they can get you, what that means for payments, all the associated costs and fees (including things like pre-paid taxes and other things required by the city for you to pay up front etc)...the GFE is what will help you determine what is a better deal from one broker to another because you can see all the costs up front and in black and white and then compare apples to apples.

 

[aljdewey]

Date: 1/23/2006 11:28:43 PM
Author: Tacori E-ring
Oh I see what you are saying. Basically it is the same as the 80/20 but if you have 10% to put down than you would only need your second note to cover 10%. Honestly I know nothing about taking out of your DH pension but the thought of that makes me nervous. I rather have two notes on my house than messing with my retirement fund. Just my 2 cents.

Honestly, it now sometimes makes more sense to borrow or even withdraw from 401K than to have 2 notes. It really depends on circumstances.

Example: Most of the time, HELOCs are balloons....they start with lower payments for the first half of the term and inflate outrageously if you don''t pay it off in 5-8 years. Even our HELOC, a rare 30-year fixed, was 7.625%......and I could have borrowed against 401K at that time for 5.5% interest. Our plan is to pay off the second within 5 years, so it may have been better for me to borrow on 401K instead of HELOC.

Even withdrawals aren''t necessarily a bad decision....it really depends on how investment-savvy you are. In my case, we were losing a TON of money renting every year and no deductions between us. Also, given the housing market, we could actually realize more return on our money by pulling it from 401K and putting it into real estate.

We took our withdrawals in November, 2004. In doing so, we weren''t allowed to participate in 401K plan for the first half of this past year (part of the terms of taking a hardship withdrawal). Even with only contributing for 6 months of this year, my 401K is back up to the same dollar amt it was last year when I took the withdrawal.....so it didn''t hurt me. I''m young enough to more than make that up, but there is NO faster way to accumulate wealth than home ownership. Huge article about it on MSN today, in fact.

 

[aljdewey]

Date: 1/23/2006 10:34:37 PM
Author: belle
as kaleigh said, you can withdraw from your pension for a downpayment, but you will be charged when you withdraw AND if the downpayment is not for a first home purchase, you will be assessed a 10% early withdrawl penalty by the irs.

Even if it IS for a 1st time home purchase, it may still be subject to penalty. Depends on the kind of fund it is.

 

[Dancing Fire]

Date: 1/24/2006 1:06:26 AM
Author: aljdewey



Do you have a Roth IRA? If you do, you can make a withdrawal of up to $10K for a first-time home purchase without penalty.

i think

you can withdrawal the amount you gained without penalty b/c Roth is after tax contribution. i.e... if have $50k in your Roth IRA and your total contribution up to this point is $20k,you can withdrawal up to $30k w/o any penalty. me think.

 

[Momoftwo]

HELOC''s are not mostly balloons. They come in a variety of options, including balloons, but most are varaible rates and for 15-20 years instead of 30. Most people use 80/10/10 to avoid PMI. We''ve had an 80/10/10 when we saw an opportunity to lower our rate and get rid of PMI, but only had 10% equity after 1 year in our house that we had put 5% down on initially(10 yrs ago). Borrowing against your 401K is allowed for home purchases, but you need to check into all the tax ramifications involved in any type of withdrawal. Not to mention your income level will affect anything you do with your retirement accounts. Withdrawing almost always carries penalties and taxes. Over the long run, money in a retirement account will have a better rate of return than a home. Also, the housing market has leveled off, even here in the DC area and is back to normal which means no double digit value increases, just the norm of 4% or so per year, so don''t go in assuming you''ll make it all back up in no time. If you have 5 or 10% to put down, I''d go that way over using future retirement money.

 

[fire&ice]

Can''t add much more - but I am a huge fan of no closing cost loans - especially if you are pressed to come up w/ the down payment.

They do loans only in NC (which I think is where you are) & VA - but check out www.capcenter.com. You fill out all the paper work on-line. Not sure if they offer any product except straight line 20% down. Worth it to check it out as when we re-financed we paid ZERO in closing costs - in fact we choose a rate that they GAVE US money BACK. They paid for our recording fees & in NC you must use an attorney to close - they even paid for that! When I say ZERO - I mean ZERO. Their interest rate wasn''t the best of the best - but considering today''s money paid out - it made sense. We saved thousands.

While interest rate is important, you have to consider other things as most people either re-finance or move. So, interest rate in may not be the single most important factor.

Shop around - but first consult a broker as to how much you can borrow, etc. The ratios change - but I think they are approximately 28% for the house & around 35% for your back ratio (all debts). You are in a better position if you are relatively debt free. Keep in mind - when you apply - do not use your charge card for big purchases even if you were to pay it off within the month. Also, look into an FHA loan for first time home buyers.

I believe most reputable mortgage companies don''t have a pre payment penalty. But, you should definitely check.

 

[aljdewey]

Date: 1/24/2006 3:38:38 AM
Author: Dancing Fire

Date: 1/24/2006 1:06:26 AM
Author: aljdewey





Do you have a Roth IRA? If you do, you can make a withdrawal of up to $10K for a first-time home purchase without penalty.

i think

you can withdrawal the amount you gained without penalty b/c Roth is after tax contribution. i.e... if have $50k in your Roth IRA and your total contribution up to this point is $20k,you can withdrawal up to $30k w/o any penalty. me think.

I don't think so, DF. Here are the guidelines.

First-Time Homebuyer Test
To avoid paying tax on a distribution of earnings from your Roth IRA, you must meet the first-time home-buyer test as well as the five-year test. To have a qualified first-time homebuyer distribution, you need to meet all of the following requirements:

The purchase must be a principal residence.
The person using it as a principal residence must be the owner of the IRA or a family member (within limits).
The person using it as a principal residence must be a "first-time homebuyer" (generally someone who hasn't owned a home in the previous two years).
The purchase must cover "qualified acquisition costs."
The owner of the IRA may not treat more than $10,000 as qualified first-time homebuyer distributions (a lifetime limitation).
The purchase must be made within the applicable time limit.

HOWEVER.....you may be thinking of this: If you're married, and you and your spouse are both first-time buyers, you each can pull from retirement accounts, giving you $20,000 in residential cash.

 

[aljdewey]

Date: 1/24/2006 6:19:31 AM
Author: Momoftwo
HELOC''s are not mostly balloons. They come in a variety of options, including balloons, but most are varaible rates and for 15-20 years instead of 30.

Yes, they do come in a variety of options.....but like a regular mortgage, you have to qualify for the better products. That''s why I said *most*, and not all. The "most" moniker came straight from my mortgage broker, and I expect she''s pretty familiar with the subject.

 

[MINE!!]

WOW!! Thanks everyone for the info..
Thanks so much Adj.. wow..

I am going to have to reread everything a few times to get it stright... it is sooo confusing... I have a hard time wrapping my head around it...

Thanks so much for your advice!!

 

[Mara]

Typically F&I you can get a no pre-pay penalty option with almost any loan but yuo basically ''buy it'' with a slightly higher interest rate, aka an extra 1/8 of a point or something. We did it because the market here is so unstable and what if we had to move before the 2-3 year penalty timeline etc. In the end it didn''t really add much onto the loan at all and it was worth it for our peace of mind, and also it allowed us to re-fi our 2nd before 2 years was up, saving us $150 a month!

I also really liked eLoan''s loan calculators and things, they are pretty detailed and you can actually do searches to see what loan options may be available to you depending on credit scores, value of the house, DP etc...I used it extensively to figure out what ranges we were in first and then did the application online and then after that we talked with local brokers but in the end eLoan was the easiest to use and we had our own online rep who we called and this and that, it was great. And because she didn''t work off commission, we didn''t feel as though we were pressured one way or the other. The biggest perk was saving the closing costs money that typically goes to brokers!!

 

[fire&ice]

Date: 1/24/2006 11:54:11 AM
Author: Mara
Typically F&I you can get a no pre-pay penalty option with almost any loan but yuo basically ''buy it'' with a slightly higher interest rate, aka an extra 1/8 of a point or something. We did it because the market here is so unstable and what if we had to move before the 2-3 year penalty timeline etc. In the end it didn''t really add much onto the loan at all and it was worth it for our peace of mind, and also it allowed us to re-fi our 2nd before 2 years was up, saving us $150 a month!

I''ve never seen a product w/ a pre-pay penalty. None of our loans were pre-payment penalty & the interest rate a non issue. I didn''t even know they existed anymore. I was under the impression that it was a fannie mae regulation. How much is the penalty. I wonder if this is specific to mortgage companies that sell their loan the next day. Though, our last re-fi sold it that day - no pre-payment pen & the same interest rate offered. All that said, agreed w/ getting one w/ no prepaypen.

 

[Mara]

Yes actually around here most loans are typically pre-pay penalty ones, but the penalty is typically only for 2-3 years after the loan origination, not the life of the loan. Maybe that is what the Fannie Mae regulation changed. So if we sold our house wthin 2 years after buying it to try to capitalize on the 30% increase in value and get a bigger one, then we''d have to pay some fee, like 1% or something to the bank for pre-pay if we had not gotten the non-penalty loan.

We weren''t sure with this market and we knew we may want to try to get a better rate on our 2nd so we wanted to ensure we got no pre-pay and had to pay a bit of an extra 1/8 of the point. But interestingly enough also is that even if you have a no-prepay-penalty loan, most lenders don''t want to let you do a full refi within 1 year after the purchase...they want you to at least wait til 1 year has passed which I found interesting because we tried it at 9 months to lock in a better rate and our broker (who admittedly was a loser we have since gotten rid of...no wonder we didnt use him the first time!) said it would look better to wait 1 year to the lenders.

Oh and another tip for those whose second loans or HELOCs are held with a major local bank....you can typically just go into a branch and tell them you want to refi...we did that with ours because it''s held with a major bank out here and they took care of it and finalized paperwork in a WEEK and no fees at all to us because we stayed with them. It was too easy...we were amazed.

 

[Dancing Fire]

Date: 1/23/2006 10:41:18 PM
Author: MINE!!

We found this really great house that we want (lets put it this way... I want).... Okay... So we can borrow from his pension and have about a 20% down payment. But the realtor said that we could do something where we get a 10% loan, a 80% loan put down 10%. Does this make any sense?

We have NO friggin clue what we are doing here. Now... how do we find out how much we qualify for? Should we go to our bank or to our credit union? What should we ask them? Or should we try some of these lending tree things?

MINE....my advice

take your time,don''t rush.the housing market will only get cheaper in the next 5 yrs.the bubble has bursted in the hot areas.

put 20% down, it will eliminate PMI.

 

[stermag]

Personally, I''ve never found many of the arguments in favor of waiting to buy very compelling, regardless of what the market is doing, but then again, the ultimate decision depends on one''s personal circumstances.

We were fortunate enough to be able to put down >20% of the value. I''m not sure that borrowing against a retirement plan or pension would have made me feel as warm and fuzzy about the decision.

Also, take with a grain of salt the mortgage amount you are approved for. We were approved for 100k more than our ultimate house cost. That''s what the bank was willing to lend us, that is NOT what we were able to afford. Still, when I saw the figure, a part of me was tempted to simply increase the max price on our searches. Having been in the house for about a year now, with all the new expenses associated with owning, I know that would have been a big mistake.

 

[Dancing Fire]

Date: 1/25/2006 12:57:39 PM
Author: stermag
Personally, I''ve never found many of the arguments in favor of waiting to buy very compelling, regardless of what the market is doing, but then again, the ultimate decision depends on one''s personal circumstances.

We were fortunate enough to be able to put down >20% of the value. I''m not sure that borrowing against a retirement plan or pension would have made me feel as warm and fuzzy about the decision.

Also, take with a grain of salt the mortgage amount you are approved for. We were approved for 100k more than our ultimate house cost. That''s what the bank was willing to lend us, that is NOT what we were able to afford. Still, when I saw the figure, a part of me was tempted to simply increase the max price on our searches. Having been in the house for about a year now, with all the new expenses associated with owning, I know that would have been a big mistake.

stermag
good for you.

yep, it is what you can afford,not what the bank is willing to lend you.

 

[fire&ice]

Date: 1/25/2006 2:13:44 PM
Author: Dancing Fire

Date: 1/25/2006 12:57:39 PM
Author: stermag
Personally, I''ve never found many of the arguments in favor of waiting to buy very compelling, regardless of what the market is doing, but then again, the ultimate decision depends on one''s personal circumstances.

We were fortunate enough to be able to put down >20% of the value. I''m not sure that borrowing against a retirement plan or pension would have made me feel as warm and fuzzy about the decision.

Also, take with a grain of salt the mortgage amount you are approved for. We were approved for 100k more than our ultimate house cost. That''s what the bank was willing to lend us, that is NOT what we were able to afford. Still, when I saw the figure, a part of me was tempted to simply increase the max price on our searches. Having been in the house for about a year now, with all the new expenses associated with owning, I know that would have been a big mistake.

stermag
good for you.

yep, it is what you can afford,not what the bank is willing to lend you.

Yes, but many people think they can spend MORE than the bank will lend them - especially if the back ratio is high. It is always wise to see how much the bank will lend them. But, agreed that it is always more expensive to run a house than you think. However, on the flip side - one''s income usually increases while the mortgage payment remains static.

 

[Dancing Fire]

Date: 1/25/2006 5:23:05 PM
Author: fire&ice

Date: 1/25/2006 2:13:44 PM
Author: Dancing Fire

Date: 1/25/2006 12:57:39 PM
Author: stermag
Personally, I''ve never found many of the arguments in favor of waiting to buy very compelling, regardless of what the market is doing, but then again, the ultimate decision depends on one''s personal circumstances.

We were fortunate enough to be able to put down >20% of the value. I''m not sure that borrowing against a retirement plan or pension would have made me feel as warm and fuzzy about the decision.

Also, take with a grain of salt the mortgage amount you are approved for. We were approved for 100k more than our ultimate house cost. That''s what the bank was willing to lend us, that is NOT what we were able to afford. Still, when I saw the figure, a part of me was tempted to simply increase the max price on our searches. Having been in the house for about a year now, with all the new expenses associated with owning, I know that would have been a big mistake.

stermag
good for you.

yep, it is what you can afford,not what the bank is willing to lend you.

Yes, but many people think they can spend MORE than the bank will lend them - especially if the back ratio is high. It is always wise to see how much the bank will lend them. But, agreed that it is always more expensive to run a house than you think. However, on the flip side - one''s income usually increases while the mortgage payment remains static.

only if they go with a fix rate loan.

you would be surprise how many people still go with ARM even with rates near historic low.