Tapping your retirement to buy a home

 Homebuyer Tips  Comments Off on Tapping your retirement to buy a home
Aug 272015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

While current mortgage guidelines require only a 3% to 3.5% down payment to purchase a home, even that’s a hurdle for some folks. If this sounds familiar, I may have a solution if you have retirement savings. The approach depends on the type of retirement plan you have.

If you have a 401k, you may be able to borrow against the account balance, if your plan permits it. Typically, the loan is limited to the lesser of $50k or 50% of the balance. Note that if you’re not using the loan to purchase your primary residence, the loan typically must be repaid within 5 years.

For those folks who have an IRA, you cannot technically borrow from the account. However, if you’re buying or building your first home, you can take out up to $10k without the distribution being subject to the standard 10% penalty. Note that if your IRA contributions are with pre-tax income, you’ll owe income tax on the money you take out.

Before you exercise either of these options, I suggest you talk to your financial advisor about how tapping your retirement account will affect your retirement plans.

Fannie Mae changes make it easier to qualify for a mortgage

 Investment, Loan Guidelines, Residential Mortgage  Comments Off on Fannie Mae changes make it easier to qualify for a mortgage
Aug 262015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Let’s look at some recent changes to loan guidelines that make it easier to qualify for a mortgage. These changes apply to Fannie Mae conventional loans.

– First, many folks, especially those employed in sales, have been penalized when applying for a mortgage if they write off business expenses on their tax return. Underwriting rules said we had to deduct the written-off amount from qualifying income. Fannie has changed that. For salaried borrowers or those with commission income that’s less than 25% of total income, the new rules say we can ignore the expenses.

– Second, with recent home price appreciation, some homebuyers are choosing to keep their current homes and rent them. Previous underwriting rules required that the current home have at least 30% equity in order for us to count the rental income and required the homebuyer to have extra cash or reserves to cover up to 6 months of housing payments on the current home. The new rules eliminate the 30% requirement, but the homebuyer still may need reserves depending on the financial strength of the borrower.

– And, finally, if reserves are required, a borrower now can use 100% of vested retirement account balances to satisfy the requirement. The previous rules required that we use a discounting factor of 60%.