Mortgage Blog

You've finally found the home of your dreams. There's just one thing standing between you and your new house: The down payment.

Many home buyers today opt to use funds from their employer’s 401(K) program to come up with the down payment on a house. Ordinarily, you can't take money from your 401(K) plan unless you retire, leave the company or become disabled, but many company plans permit certain “hardship withdrawals” when there is an immediate and heavy financial need, including the purchase of the employee's principal residence.

The drawback to a hardship withdrawal is that you will pay taxes and penalties on the amount withdrawn from your plan, which often must be paid in the year of withdrawal. And while hardship withdrawals are allowed by law, your employer is not required to provide them in your plan. Check with your employer’s human resources department if you're not sure if your 401(K) plan allows hardship withdrawal.

Another approach may be to borrow against your 401(K) – often as much as 50 percent of your account balance. You pay interest on the loan, but the interest goes back into your account. The money you receive is not taxable as long it is paid back and plans can give you anywhere from five to 30 years to pay back your loan.

There are risks involved in borrowing from your 401(K). If you lose your job or leave your employer, you must pay back the loan in full within a short period, sometimes as little as 60 days. If the money is not paid back in that time, it is considered a withdrawal from your plan and subjected to the same taxes and penalties. And while 401(K) accounts can usually be rolled over into a new employer’s 401K without penalties, loans from a 401K cannot be rolled over.

In addition, because the funds withdrawn from your account are no longer earning compound interest, your account will be smaller when you retire. And you’ll be replacing pretax money with after-tax money.

Some lenders will count the money you borrowed from your 401(K) as an additional debt that will go along with your car payments, student loans and credit cards. While it may seem unfair since you are borrowing your own money, most lenders view it as a payment obligation that affects your debt-to-income ratio in qualifying for a home loan. It may be a factor in whether you decide to make a hardship withdrawal from your 401(K) and pay tax penalties or borrow against it.

As of October 2007 MyFloridaRates.Com has joined with Gemcap to offer the "Equity Building System". This is a simple program which allows you to rapidly build equity in your home.

The Equity Building System (EBS) is based on the simple concept of making one extra payment, per year, to principal. This, in turn, will reduce the total amount of interest paid over the course of the loan. Gemcap accomplishes this by systematically collecting ½ of a loan payment every other week. Since there are 52 weeks in a calendar year, this totals 26 half payments. The 26 half payments are the equivalent of 13 full payments, with the extra payment being applied directly to principal. This simple concept significantly reduces the total amount of interest paid over the course of the loan.

For more information on this exciting new program visit Equity Building System or call us at 800-461-2986.

A stated income mortgage may be the best option for you if you have verifiable employment and an acceptable credit score (typically a fico of 680 or higher). This type of loan is often used by self-employed borrowers because of the ease of providing less documentation. On the application you simply state your income but it must be accurate and reasonable for your job type.

Self-employed borrowers must be able to show a two year employment history in the same field. This can typically be done in one of two ways; either with two years of a State Business license or a letter from your CPA. For wage-earners the verification is much simpler. Often a telephone call to the HR department of the Employer will suffice. The Lender will not attempt to verify your income.

If your loan is a SISA (state income state assets) you will also state your financial assets. On a SIVA loan (Stated income verified assets) you will be required to document your financial assets and account for any recent large deposits. Both fixed rate and adjustable rate loans are offered under these programs. Please be aware that if you select a stated income mortgage, you may receive a higher interest rate than could be obtained under a fully documented loan.

Stated income loans help prospective buyers who may not qualify for a traditional mortgage achieve their homeownership goals. To find out if a stated income loan is right for you, please contact one of our loan specialists by calling 800-461-2986.

With an Interest Only mortgage, you are required to pay just the interest and not any principal, for a designated period. When that introductory period ends, your monthly payments are adjusted upward and your loan amortized over the remaining years of your mortgage. Because your payments are lower in the first years of your mortgage, you may be able to close on the house you want instead of the one you can currently afford with a standard fixed rate, fully amortized loan. Often, at the end of the interest-only term, homeowners refinance and close on a mortgage that reflects their current borrowing power.

An interest only mortgage can help you lower your monthly payment, leaving more money in you budget for other investments and expenses. You may choose to forego building equity during the initial years of the mortgage and assume that your home will build value through appreciation.

Of course, you can choose to make payments on the principle of the loan at any time.

If you choose to pay principal the net affect will be to not only lower the loan balance but also lower your payment. This significant feature of an interest-only loan makes it a particularly good option for those with irregular income, such as commissioned employees or the self-employed.