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Within reason, using a 401k is ok for covering some of the down payment. There are some pretty strict situations (that most people are unable to follow) that make it ok.
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Oct 17, 2023 01:04
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Pilfered Pallbearers posted:From my recollection, most 401k plans offer loans for home buying with pretty extreme payback periods (10-20 years) and very loose requirements. There aren’t any credit checks or anything, and you generally aren’t eligible only if you   I know I'm "paying myself back the interest" but laffo at 10.5% interest rate anyway.
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Oct 17, 2023 05:07
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Jesus Christ 10.5% is insane. I guess it’s forced savings but still. Mine was like 3.5% or 4.5%.
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Oct 17, 2023 05:27
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is that like one weird trick to get extra money into your 401k over your contribution limit via "interest" paid to yourself???
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Oct 17, 2023 05:31
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Pilfered Pallbearers posted:Jesus Christ 10.5% is insane. I guess it’s forced savings but still. Interest rates are higher right now. My 401k loan rate is at 9.5% and a 60 month signature loan at my credit union is 12%.
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Oct 17, 2023 05:37
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What's the penalty for not paying the loan against your money again? I forget but I feel like it was pretty minor
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Oct 17, 2023 06:20
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Hadlock posted:What's the penalty for not paying the loan against your money again? I forget but I feel like it was pretty minor Default makes it a taxable distribution + 10% early withdrawal penalty, plus you can't put the money back (so you effectively forfeit compounding interest on that portion permanently) since you have a contribution cap per year. E: Also (depending on your plan) some 401k's do not let you make contributions / get matches while you have a loan out. My current one does, but one of my previous ones required you set your contributions to 0% for the duration of the outstanding loan. You had to repay it in full before you could make contributions, which made any type of loan a complete non-starter IMO. Sundae fucked around with this message at 06:36 on Oct 17, 2023 |
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Oct 17, 2023 06:33
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Yeah that sounds about right My boss, what, a decade ago? A supervisor with community college education. Probably made exactly the national average household income. Told me about how he borrowed against his 401k to buy a house for his family and three kids. Rather than raise their kids in a two bedroom apartment in Dallas they were able to buy a 5 bedroom house with a separate den, two car garage, new construction at the very edge of the metroplex (Dallas Metro area) about an hour (one way) east of his job. I don't think he ever defaulted on the 401k loan but the kids for the most part were good kids, two of three went on to (4 year) colleges on athletic scholarships and from what I could tell led a very middle of the road "American dream". In my opinion it worked out pretty good. He's probably screwed himself out of returns on that $50k but he bought in near the bottom of the 08 debacle so he actually came out ahead probably* So yeah I think official advice is "no" but also "do as I say, not as I do" *Past results do not guarantee future returns
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Oct 17, 2023 06:49
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Sundae posted:E: Also (depending on your plan) some 401k's do not let you make contributions / get matches while you have a loan out. lmao holy gently caress that would be such a godawful deal, i guess that's one way to discourage people from borrowing from their 401k
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Oct 17, 2023 08:56
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You're also paying back pre-tax money with post-tax money, so you are falling behind that way too. In general, sometimes it makes sense for someone, sometimes it doesn't. I think it makes the most sense when its a short-term loan to get past PMI, you used to be able to get an immediate 2nd mortgage to do that and just speed-run paying that off but I don't think you can do that anymore so a 401k loan can make sense to avoid PMI.
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Oct 17, 2023 15:44
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Lockback posted:You're also paying back pre-tax money with post-tax money, so you are falling behind that way too. I feel like this is often misunderstood, especially when I hear people say that the money is "double taxed" (you didn't say that, but other people I have talked to about 401k loans have) The interest is effectively taxed twice: once when it's for loan repayment and once when you withdraw it from the 401k at retirement. The principal loan amount was not taxed when you contributed, nor was it taxed when you spent the money. When you pay taxes on the repayment you are just getting back to "even" with the IRS and then it's taxed like any other withdrawal when you retire. Hopefully the way I explained it isn't too confusing.
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Oct 17, 2023 17:06
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Yeah yeah, but it'll take longer to repay it back than it did to put it in, which is why I said "you're falling behind" I meant you're falling behind what you could have been making if that money was in your account.
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Oct 17, 2023 17:17
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cross-posting
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Oct 18, 2023 18:31
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Hi house buying thread. So, after 18+ years (wife and I are about 37) of renting, we are at the point where we are going to be looking into buying a house. No lie, I’ve avoided it for years due to job changes, moves, and honestly I never had a desire since I’m not a super handyman person. But we keep having rental drama come up, so if we are going to move again, it’s gonna be buy. Sucks that I am pretty sure it’s not a great time to buy because of rates. Honestly, I guess just gotta go with it for that. Time frame: current least goes until march. Anyway, I’m going back a few pages here yeah, but OP is likely out of date, so I just want to ask: what are the basics I need to know ? Help is very much appreciated.
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Oct 19, 2023 01:55
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Duckman2008 posted:Hi house buying thread. So, after 18+ years (wife and I are about 37) of renting, we are at the point where we are going to be looking into buying a house. First, condolences on beginning the search. Second, head to redfin.com and zillow.com until you start to feel a strange mix of emotions. You will eventually most likely want (and should likely have) a licensed real estate agent AKA broker once you reach the next stage, either before or after you start finding properties you like, depending on how you want to do it. I happened to use a Redfin agent since they operate in my area and it went fine. That's at least how to get started?
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Oct 19, 2023 02:02
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Inner Light posted:First, condolences on beginning the search. Second, head to redfin.com and zillow.com until you start to feel a strange mix of emotions. For sure. For finance stuff, what are the terms I need to know ?
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Oct 19, 2023 02:08
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Duckman2008 posted:For sure. Mortgage Interest Rate (typically 30year, 90% of homeowners use 30year) is the most important single aspect of the financial terms, typically you will see it expressed as APR, and also APY. Not a big difference between the two. As a buyer, you would be most concerned with the Interest Rate because it affects your Monthly Payment. The Monthly Payment consists of PITI (Principal, Interest, Taxes, Insurance), plus sometimes other things, and is usually estimated by Redfin and Zillow. Instead of Rent being a maximum amount you will owe per month for your housing costs, PITI is the minimum you will owe over the term of your mortgage loan, barring any changes or unusual things. Buyers can lower the effective Interest Rate of their mortgages by 1. paying more money down, although sometimes it is not advantageous to pay more past a certain amount, or 2. buying points from the person selling you the mortgage, which is sometimes not advantageous, or 3. changing the # of years term, which is sometimes not advantageous. Most of this is distilled into the single most important financial terms document of a mortgage offer, called a Loan Estimate. VVVV These are great questions IMO. Inner Light fucked around with this message at 02:24 on Oct 19, 2023 |
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Oct 19, 2023 02:14
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Do you have a budget in mind for the house? What % of that do you have/can you get for a down payment? Down payment is probably the most important thing to get a handle on right now for where you are. You may want to figure out too if your lease can go month to month after March. You don't want to be backed into a corner and forced to pull the trigger on a house you don't want because your lease is up.
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Oct 19, 2023 02:20
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Duckman2008 posted:For sure. Do you have a personal budget? If not, get one of those first. Then calculate how much you can feel comfortable spending per month on housing. Then figure out how much house that buys you in the areas that you like. Don't forget taxes, insurance, and maintenence! And also, water and electricity and trash may cost a bit more too! Get those numbers figured out. You can get pre-approved at any time with a lender, that's the easy part. The pre-approval amount will be unreasonably large. You may as well do that and start figuring out which lenders you may want to work with. When you eventually start making offers you want to have all of your lenders already lined up so that you can quickly get loan estimates from them, then you get to pick whichever one you like best. These are the things you can start doing right now while you also browse listings to get a sense for what things cost in your area.
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Oct 19, 2023 02:33
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Lockback posted:Do you have a budget in mind for the house? Ok this is great thank you (and thank you others). Without pulling from my Roth IRA (obviously not exactly wanting to do that), I have about $17k I can put down while keeping $10k in emergency savings. We currently pay $1550 in rent. For monthly all in, obviously that would be great, I would say a stretch is $1800-2000 max. In our area, most places that I think are in our budget and preference seem to be $150-250k (I’m still digesting numbers but I would bet $250k is at most the max, if not less than that). Yeah, we will have to cross that bridge but def hoping for month to month. Not trying to rush it for sure. Our credit scores are 815 and 770 ish respectively. Only debt we have is…..about $100k student loans  Legit our only debt, cars and credit cards paid off, etc.
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Oct 19, 2023 02:49
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Start going to open houses ASAP. Figure out +/- $150k of your budget, then go on Zillow and find like, ten open houses to go explore. This should give you a representative idea of what your market looks like in your price range. Going to the open houses will probably do a good job of setting expectations of what your getting for your dollar Whenever you go out see if there's an open house nearby so you can squeeze in and see another one. If you don't go to a bunch of open houses you'll find one house and get emotionally attached and it'll be really hard to walk away from an ugly deal or a deal that goes sour. If you go back a page or two you'll see a guy backing out of a deal because a bunch of weird stuff came up due to solar panels on the roof that were owned by a third party
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Oct 19, 2023 02:52
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Duckman2008 posted:Hi house buying thread. So, after 18+ years (wife and I are about 37) of renting, we are at the point where we are going to be looking into buying a house. I can't speak to in any way if these will go down, up, stay the same or whatever at all, but rates are the highest in 23 years and seem to still be climbing quite fast. https://www.mortgagenewsdaily.com/markets/mortgage-rates-10182023 For clarity, a $600k home with 20% down @ 8% is a full $1,000 more a month and $350,000 more in lifetime interest than a 5% loan. Edit: Duckman2008 posted:Only debt we have is…..about $100k student loans They ain't gonna care that they're student loans. It's still $100k in debt. After a mortgage you'll be $250k+ in debt. Pilfered Pallbearers fucked around with this message at 02:56 on Oct 19, 2023 |
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Oct 19, 2023 02:53
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Duckman2008 posted:I have about $17k I can put down while keeping $10k in emergency savings. I plugged in $17,500 down payment (10%) on a $175,000 house, your monthly payment all in with HOA PMI and property tax is about $1,550 @ 7.9% Apr  https://m.mortgagecalculator.org/ Personally I would beg/borrow/steal $3000 and plan on buying at the $200k mark, your all in monthly cost is going to be $1750. At 37 you're gonna want as much house as you can get and the extra headroom will let you look at the middle of the market rather than the bottom-middle of the market. But it's definitely financially much safer to buy closer to $150, of course
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Oct 19, 2023 03:01
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Leperflesh posted:I'm not shaming or anything and it really depends on all the particulars, but I think most of us in the thread are against raiding your retirement money to buy a house with. Count me down for 401k loans towards a first-time home purchase as being extremely good and worth it. You're paying yourself back, with interest. Maybe it doesn't work out for everyone, but interest rates exploded immediately after I bought. If I did the prudent thing and waited until I saved more I'd be completely locked out of buying with current interest rates.
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Oct 19, 2023 03:13
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Pilfered Pallbearers posted:I can't speak to in any way if these will go down, up, stay the same or whatever at all, but rates are the highest in 23 years and seem to still be climbing quite fast. And prices have risen too. Between price and rate increases, we would be paying double our current mortgage for the house we bought barely 3 years ago. I really feel for anyone looking right now, because buying power, even with 20% down, is significantly lower than it was a few years ago.
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Oct 19, 2023 03:18
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It’s berserk. Two years ago I was doing the Zillow daydreaming thing with all kinds of lake cabins and cute Victorians that only needed reasonable work. Today in the same budget there are like 5 houses in the state and it’s all “this building does not have a roof/floor/running water, they will not give you a loan, cash only.”
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Oct 19, 2023 03:31
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i like nice words
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Not the answer you want to hear OP but my honest opinion: prices/rates are too high and you don't have enough money to put down. You should continue renting another year or two, save whatever money you can, and re-evaluate. It is also a concern that in any negotiating environment, if you go into it determined that you must have The Thing, you are very very likely going to get taken to the cleaners. At the very least you should be fully prepared for and comfortable with walking away and continuing to rent if you don't get a deal you really like. Oh and never trust a realtor about anything. Retain a good real estate attorney. If you can't afford one, you can't afford a house. All of the above is In My Very Humble Opinion.
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Oct 19, 2023 03:35
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NyetscapeNavigator posted:Count me down for 401k loans towards a first-time home purchase as being extremely good and worth it. You're paying yourself back, with interest. Maybe it doesn't work out for everyone, but interest rates exploded immediately after I bought. If I did the prudent thing and waited until I saved more I'd be completely locked out of buying with current interest rates. My 5.5% all of a sudden doesn't seem so bad, with the current rates. Duckman2008 posted:Ok this is great thank you (and thank you others). I'd second not trying to buy at the bottom of the range for your market. Buy a house you're going to want to live in for at least a decade. Is the student loan recipient eligible for income-based payments or public service forgiveness?
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Oct 19, 2023 03:37
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Eric the Mauve posted:Not the answer you want to hear OP but my honest opinion: prices/rates are too high and you don't have enough money to put down. You should continue renting another year or two, save whatever money you can, and re-evaluate. This is wise advice and should be taken into consideration On top of your down payment you need another $3-5000+ in closing costs The good news is the market is going to be flat for the next 6 months and if you sell a car and save aggressively you'll have enough cash right as rates start coming down
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Oct 19, 2023 03:50
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Hadlock posted:Start going to open houses ASAP. Figure out +/- $150k of your budget, then go on Zillow and find like, ten open houses to go explore. This should give you a representative idea of what your market looks like in your price range. Going to the open houses will probably do a good job of setting expectations of what your getting for your dollar This is great advice thank you. Pilfered Pallbearers posted:
Oh i know, I’m just saying it’s the one debt that fucks us over. Hadlock posted:I plugged in $17,500 down payment (10%) on a $175,000 house, your monthly payment all in with HOA PMI and property tax is about $1,550 @ 7.9% Apr Super appreciate this as well, and yeah, our foreseeable savings is obviously going into an account to try and have a higher down payment. Eric the Mauve posted:Not the answer you want to hear OP but my honest opinion: prices/rates are too high and you don't have enough money to put down. You should continue renting another year or two, save whatever money you can, and re-evaluate. A. You are correct it’s not the answer i want to hear. B. I still appreciate this so thank you. Ham Equity posted:My 5.5% all of a sudden doesn't seem so bad, with the current rates. No kids and not having kids. 2 cars, both paid off and we have jobs where we both need a car. Our area in general would always require a car for each of us. Great question on student loans. So, $90k of it is my wife’s, and it will be dis chargeable under public forgiveness loans. I have to finish the paperwork to determine how many months are left, which is a project for this weekend. Way more people replied here than I anticipated , so thank you. In general a few raids to summarize -our only debt is student loans . I think we are still 5-6 years from public forgiveness, but obviously that would be huge once that happens. Very much work in progress with recent changes. We have 2 cars and need them. Knock on wood both fine for now. I think rent fatigue may be a thing here. But yeah, it’s not like we need a home tomorrow. That said, i think the quotes on making sure to not become desperate makes sense for sure. So we’ll check out some places and go from there. It sucks, I know it’s a bad time to buy. Without getting into it , really it’s the first time we ever would have been open to buying. Rates suck now yes. What are the rules on later re financing ? Obviously I assume that you can’t buy based on it, and lower future rates aren’t guaranteed, but just curious.
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Oct 19, 2023 05:06
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Eric the Mauve posted:Retain a good real estate attorney. If you can't afford one, you can't afford a house.
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Oct 19, 2023 05:10
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Duckman2008 posted:Rates suck now yes. What are the rules on later re financing ? Obviously I assume that you can’t buy based on it, and lower future rates aren’t guaranteed, but just curious. Not much in the way of rules. You’re taking out a new loan and using it to pay off your old one. You’ll pay some origination fees to your new lender and get totally new terms. I’d say odds are good that rates will come down a lot in the next five years, but we’ll see. Overall, with the caveat that I don’t know your market in specific, I’ll second that this is not a good time to buy. Eventually either the rates will come down or they’ll start driving down prices, but sellers are going to be stubborn for awhile, so right now you’re going to get squeezed at both ends. Start looking at houses, get an idea of what you’re looking for, and wait a year or two for things to play out.
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Oct 19, 2023 05:54
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Do not get in to a house where you need to refinance at a lower rate to make it work. Sure, rates could go down and you could refinance. Rates could also go up. Being able to refinance is a nice bonus not something you should plan around.
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Oct 19, 2023 11:13
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KYOON GRIFFEY JR posted:Do not get in to a house where you need to refinance at a lower rate to make it work. Sure, rates could go down and you could refinance. Rates could also go up. Being able to refinance is a nice bonus not something you should plan around. Completely agree here. My market in particular is essentially anything around the Collinsville , IL area.
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Oct 19, 2023 12:56
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Eric the Mauve posted:Not the answer you want to hear OP but my honest opinion: prices/rates are too high and you don't have enough money to put down. You should continue renting another year or two, save whatever money you can, and re-evaluate. This is exactly my opinion as well. KYOON GRIFFEY JR posted:Do not get in to a house where you need to refinance at a lower rate to make it work. Sure, rates could go down and you could refinance. Rates could also go up. Being able to refinance is a nice bonus not something you should plan around. Also this. It sounds like OP is just fed up with renting and that's a terrible place to come from when trying to buy a house. Their proposed down payment and budget is going to cost them several hundred dollars a month in cash flow over renting, so hopefully that buys them a lot more than they are renting now otherwise this is an absolutely bad decision. Also, while these rates are the highest in 20-some years, they are not out of the ordinary on the scale for a few decades. In fact they are slightly low.
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Oct 19, 2023 13:54
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duckman, you wanna become familiar with this: https://www.consumerfinance.gov/ask-cfpb/what-is-a-loan-estimate-en-1995/ https://www.consumerfinance.gov/owning-a-home/loan-estimate/ the OP probably needs updating post-pandemic with new links, ARM info, etc., and a condensed format but I don't have time to draft changes right now. if people want to collate and suggest changes someone please track requests (haha maybe duckman!) and we can update it later this month
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Oct 19, 2023 13:59
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I'll come from the other way and say if his area has $1500+ rents but a 200k house would be as appealing/work as well I think exploring it makes sense. If he's looking at that price range I don't see local prices coming down from that low,v even if nation wide they do, and I certainly don't think trying to time interest rates makes sense (they can go up more too). I do agree the down payment is low but looking into FHA loans makes sense here. Given how low your savings are, getting into a better habit of socking money away is going to be needed, and taking time to do that might be a good idea but given the house prices in your area I don't think I'd try to time the market. Life is short and if your unhappy where you live being unhappy for five years isn't worth a lower interest rate.
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Oct 19, 2023 14:19
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Being house poor is a great way to be not only profoundly unhappy, but also trapped.
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Oct 19, 2023 14:20
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Duckman2008 posted:Completely agree here. Do you want the name of my Redfin agent guy? He’s in Chicago but maybe can help or can refer to the folks that specialize over there. I don’t get anything from referrals.
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Oct 19, 2023 14:25
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At minimum I'd suggest that starting at the concept of wanting a house and getting in to a house 6 months later from a cash-tight situation is not a good idea. You're gonna put a lot of pressure on yourself. $20K down + closing costs (figure 6% being $11K) + immediate maintenance budget ($5K, you could skimp on this) gets me to a total of $~36K. How long would it take for you to save an additional $20K? I would target buying a house at that point in time.
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Oct 19, 2023 14:39
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