Saving the down payment may be unnecessarily keeping would-be buyers from getting into a home. They may be unaware that the funds might be available.
The NAR Profile of Home Buyers and Sellers reports that 81% of first-time buyers got all or part of their down payment from savings. Less than 4% said that all or part of the down payment came from a withdrawal in their IRA and 8% from their 401(k) or pension fund.
Traditional IRAs have a provision for first-time buyers which include anyone who hasn’t owned a home in the previous two years. A person and their spouse, if married, can each withdraw up to $10,000 from their traditional IRA for a first-time home purchase without incurring the 10% early-withdrawal penalty. However, they will have to recognize the withdrawal as income in that tax year. For more information, go to IRS.gov.
Allowable withdrawals from traditional IRAs can be from yourself and your spouse; your or your spouse’s child; your or your spouse’s grandchild or your or your spouse’s parent or ancestor.
Roth IRA owners can withdraw their contributions tax-free and penalty-free at any age for any reason because the contributions were made with post-tax income. After age 59 ½, earnings may be withdrawn as long as the Roth IRA have been in existence for at least five years.
Up to half of the balance of a 401(k) or $50,000, whichever is less, can be borrowed by the owner at any age for any reason without tax or penalty assuming the employer permits it. There can be specific rules for loans from a 401(k) that would determine the repayment; interest is usually charged but goes back into the owner’s account. You can consult with your HR department to find out the specifics.
A risk in borrowing against a 401(k) comes if your employment ends before the loan has been repaid. The loan may have to be repaid as soon as 60 days to keep the loan from being considered a withdrawal and subject to tax and penalty. Even if you continue with the same employer, failure to repay the loan could be considered a withdrawal also.
Your tax professional can provide you specific information on how making a withdrawal from your retirement program might affect you. Additional information can be found on www.IRS.gov.
“It’s not far, if you know the way.” What this expression implies is that you could have a long way to go if you don’t know where you’re going or how to get there. Just like reading a map, there are some definite steps that will improve your success in buying a home in today’s market.
- Know your credit score – the best mortgage rates are available to borrowers with the highest scores. Unless you know what your credit score is at all three major credit bureaus, you don’t really know what rate you’ll have to pay.
- Clean up your credit – it is estimated that about 90% of credit reports have errors. Some are not serious but others could affect a borrower from getting the loan they want. It is your responsibility to know what is on your different reports and correct them if possible. You’re entitled to a free copy of your credit report each year from Experian, Trans Union and Equifax.
- Get pre-approved – Taking the time to make a loan application with a qualified lender even before you start looking at homes will provide peace of mind, make sure that you are looking at the “right” homes and may help you negotiate the best price on the home you select.
- Do your homework – when you find the home that meets your needs and desires, get the home inspected and research the tax assessments, school ratings, crime activity, possible zoning changes and comparable sales in the area.
Call me for a recommendation of a trusted mortgage professional and an inspector.
Special consideration is made by IRS for the sale of a jointly-owned principal residence after the death of a spouse. Surviving spouse may qualify to exclude up to $500,000 of gain instead of the $250,000 exclusion for single people if certain requirements are met.
- The sale needs to take place no more than two years after the date of death of the spouse.
- Surviving spouse must not have remarried as of the sale date.
- The home must have been used as a principal residence for two of the last five years prior to the death.
- The home must have been owned for two of the last five years prior to the death.
- Survivor can count any time when spouse owned the home as time they owned it and any time the home was the spouse’s residence as time when it was their residence.
- Neither spouse may have excluded gain from the sale of another principal residence during the last two years prior to the death.
If you have been widowed in the last two years and have substantial gain in your principal residence, it would be worth investigating the possibilities. Time is a critical factor in qualification. Contact your tax professional for advice about your specific situation. Contact me to find out what your home is worth in today’s market. See IRS Publication 523 – surviving spouse.
It’s not “if” the rate goes up but “when” the rate goes up; it could make a big difference for some buyers. Freddie Mac predicts that mortgage rates will be at 4.5% a year from now.
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If buyers can afford a home with higher interest rates, it means higher payments. Higher payments might mean they won’t have the money to spend on other things like furniture or improvements to the home or an unrelated purchase like a new car.
When the rate moves 0.50% on a $250,000, the payment goes up by $70.66 a month. If it moves 1.00%, the payment goes up by $143.74 per month, each and every month for the entire term of the mortgage which means paying over $50,000 more for the house.
The question facing every borrower in this situation is “How will you feel about having to pay more to live in the same house because you were not ready to commit?”
Then, there’s the borrower who is absolutely maxed out as to what they can qualify for or sometimes, it is a borrower who just refuses to pay a higher payment. When that’s the case, the buyer has to make a larger down payment. In the same example, a 0.50% increase in rate would require $14,873 more in down payment. That could make the purchase impossible or require the buyer to buy a lesser price home that will not have the same amenities.
Mortgage rates have been low for so long that some people think that is what they should be. There are some economists who believe that the economy will not be strong again until mortgage rates are in the 7% range.
To see how this type of scenario might affect you, go to the If the Rate Goes Up calculator.
Having a dust-free home isn’t difficult, but it takes a serious commitment and a housekeeping strategy that addresses the dust and its causes. Whether your motive is cleanliness or to eliminate the cause of some allergies and asthma symptoms, it will be worth it.
1. Try to dust your home at least twice a week. Dust the tallest items and work your way down. Dust picture frames, blinds, baseboards and anything that stands out from the wall.
2. Feather dusters can spread more dust than they collect compared to microfiber cloths that attracts dust because they have an electrostatic charge.
3. Filters on heating and air-conditioning systems should be changed often not only to remove dust from the air but to increase the efficiency of the units themselves. Special HEPA filters can improve the overall indoor air quality.
4. Frequently changing the bag or emptying the container in your vacuum is helpful in eliminating dust.
5. Vacuum the floors at least once a week. Vacuum under furniture and periodically, move appliances to clean behind and underneath. Use the proper attachments to vacuum upholstered furniture and under cushions.
6. Eliminate dust magnets like carpet, heavy drapes and upholstered furniture. Consider hard surface flooring like wood or tile instead of carpet.
7. Keep windows closed to keep dust out.
8. Clean your pillows and drapes.
9. Damp mopping and dusting with plain water helps hold the dust and is environmentally friendly.
10. A humidifier can eliminate static electricity which holds dust.
11. Air purifiers circulate are and capture dust and other pollutants.
Becoming debt free is as much a part of the American Dream as owning a home but there certainly can be conflicting circumstances that make the decision to pay off your mortgage early unclear.
The advantages of paying off debt early is increased cash flow, less interest paid and a higher credit score. The disadvantages are lower cash flow available as discretionary funds for meals, entertainment and other things. If the ultimate goal is financial security, is it worth the intermediate sacrifice?
Whether you pay off your mortgage early is a personal decision that may be right for one person and not for another. Consider the following before you get started:
Reasons you should
- Peace of mind knowing that you don’t have a mortgage
- You’ll save interest regardless of how low your mortgage rate is
- Lowering your housing costs before you retire
Reasons you shouldn’t
- You can invest at a higher rate than your mortgage
- You have other debt at a higher rate than your mortgage that needs to be paid off
- You might need the money in the future and want to remain liquid
- You might not qualify for a mortgage currently
- You should pay off other debt with higher interest rates
- Your employer has a matching retirement plan that would benefit you more
- You have more urgent financial needs like emergency fund, life, health and disability insurance
- You expect high inflation and the value of your mortgage debt will decrease
- You expect high inflation and the value of your mortgage debt will decrease
Use this Mortgage Accelerator to determine how quick you can pay off your mortgage.
There are two negotiation periods in some home sales. The primary negotiation takes place when the contract is agreed upon that includes the price, closing and possession. Buyers and sellers alike feel relieved once this first round has resulted in an agreement but there may be more negotiations to come if there are contingencies for financing, inspections or other things.
The purpose of an inspection is for the buyer to receive an objective evaluation about the condition of the home and its components to identify existing defects and potential problems. The expense for inspections can be several hundred dollars and it’s reasonable for buyers to not want to spend the money before they find out if they can come to terms with the seller. From a different perspective, sellers want to know quickly if the buyer is going to reject the home due to the inspections.
Sometimes, buyers will expect sellers to make all of the repairs listed on the report and this is where the second round of negotiations begins. If the seller refuses, the negotiations can go back and forth until the other party accepts the offer on the table or the contract falls apart.
When purchasing a new home from a builder, it is expected for everything to be in working order; after all, it is new. However, it is reasonable to expect that existing homes, that are not new, have a different standard. While it’s understandable that buyers would want to be aware about major items that are not in “working order”, normal wear and tear of components based on its age should be expected.
In a highly competitive seller’s market, buyers might do whatever they can to get their contract accepted, realizing that there is another place to negotiate when they’re not competing with other buyers’ offers to purchase.
For this to be a WIN-WIN negotiation, both seller and buyer must feel good about the transaction. Neither party should feel that they have been taken advantage of.