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Borrowing Against 401(k) to Purchase a Home: Financial “Do”, or “Don’t”?

March 30, 2017

 

 

 

Many first time homebuyers are ready to take on the expense and responsibility of homeownership but lack the significant down payment that is generally required as part of a mortgage loan, or that is required in order to avoid the additional purchase of private mortgage insurance (or, PMI). While many prospective homeowners may not have a lot of cash in liquid savings, they do have alternate investment resources which inevitably leads down the train of thought in which the wonder, “what about tapping into our 401(k) or other retirement savings to use as a down payment and closing costs?” If this situation sounds all too familiar, and you are many years from your expected retirement age, ask yourself this question: Does it make sense financially to either withdraw, or borrow money from your 401(k) to help fund your home purchase?

Can you either withdraw or borrow money from a 401(k) account before you reach retirement age?

Yes; there are no laws or rules that prevent individuals from withdrawing money from their retirement accounts before they reach retirement age. That said, there may be some tax penalties associated with early withdrawals from retirement accounts that you’ll want to take into consideration before taking any money out of your retirement funds. 401(k) generally allow for the owner of the account to borrow money from the retirement account for the purchase of a home. These withdrawals are not subject to a tax penalty, but they are in the form of a loan, which must be repaid to your retirement account.

Things to consider before borrowing money from your 401(k)

Borrowing money from your 401(k) to purchase a home is often a pretty quick and pretty easy process; but does it make sense for you to tap into your retirement savings to purchase a home? In order to determine what makes the best financial sense for you and your family, you’ll want to weigh the pros and cons to borrowing money from a 401(k) to fund your home purchase.

— You will have to pay back the money you borrow. When you borrow from a 401(k) to purchase a home, you generally will have several years to repay the amount borrowed. You’ll want to make sure that you can swing this extra monthly payment in addition to your new mortgage. Additionally, if you leave your employer (the company sponsoring your 401(k)) before you repay your loan, you may have to repay the entire balance of the loan within just 60 days or be subject to a tax penalty. If you plan on changing careers and employers in the near future, this is definitely something you’ll want to keep in mind.

—You may impact your future retirement savings. If you are able to quickly repay the amount borrowed from your 401(k), you may not impact your savings significantly over the long term. But, any money you withdraw from your 401(k) won’t be growing towards your retirement savings.
Finally, if you are borrowing money from your 401(k) in order to avoid paying for private mortgage insurance or PMI, you’ll want to calculate what your monthly PMI payment would be and whether it makes more sense to just pay that until you reach the needed equity in your home to request PMI removal.

Article by: MDC Financial Service Group

 

Are you considering buying a home? I can meet with you and guide you through the process. Just send me an email or call me at 619-888-2117. 

 

 

Inventory Balance

March 23, 2017

 

Questions:

  1. What exactly is “housing inventory” and how is it calculated?

  2. How do you know if it is a Buyer’s market, Seller’s market or neutral market?

When deciding to sell or buy a home it is important to discuss the marketplace with your Realtor to understand the current climate.

Currently the inventory in San Diego County is currently less than two months making it a Seller’s market HOWEVER, interest rates are still historically low giving Buyers good reason to purchase.

How to Compute Months of Inventory

  1. Find the total number of active listings on the market last month.
  2. Find the total number of sold transactions for the last month.
  3. Active listings divided by the number of sales = the number of months of inventory remaining.

Buyer’s Real Estate Markets

In these markets there are more homes available for sale (higher inventory) than buyers to purchase them.

In Buyer’s markets serious sellers are often more willing to negotiate. This means you may be able to buy a home for less than list price, and the seller might be willing to pay some of your closing costs and make more repairs.

Signs of a Buyer’s Market

  • More than six months of inventory is on the market.
  • Prices are reduced before going into escrow.
  • Sale prices are lower than listing prices.
  • Fewer buyers are purchasing, resulting in lower closed sale numbers.
  • Median sales prices are declining.
  • Days on the market are longer.

Seller’s Real Estate Markets

In these markets there are more buyers than available houses to buy.

In Seller’s markets serious buyers are often willing to pay more than list price, tighten or and/or waive contingencies. Properties usually receive multiple offers and don’t stay on the market very long.

Signs of a Seller’s Market

  • Less than six months of inventory is on the market.
  • Prices are not reduced before going into escrow.
  • Sale prices are higher than listing prices.
  • More buyers are purchasing, resulting in higher closed sale numbers.
  • Median sales prices are increasing.
  • Days on the market are shorter.

 

Neutral Real Estate Markets

These markets are balanced. Typically, interest rates are affordable and the number of buyers and sellers in the marketplace are equalized. The scales don’t tip in either direction.

Signs of a Neutral Market

  • Three to six months of inventory is on the market.
  • Sale prices are close to listing prices.
  • Sales numbers have stabilized.
  • Median sales prices are flattened.
  • Days on the market are 30-60 days.

Please contact me to discuss the current climate and how you can best use it to your advantage! Just send me an email or call me at 619-888-2117. 
 

 

Market @ A Glance: March 2017 Edition

March 15, 2017

Local Market Update - San Diego County - Real Estate
Here is the latest scoop on the local and state housing markets. For specific information on your neighborhood or a market analysis on your home please  Just send me an email or call me at 619-888-2117. 

 

 

 

 

What Lies Ahead in Real Estate in 2017?

March 15, 2017

 

 

 

What lies ahead in real estate in 2017?

Many clients have asked me what they should expect in the coming year(s). Real estate is a critical sector of the economy that affects buyers, sellers, renters, landlords and homeowners and there is always some uncertainty that occurs whenever a new administration comes into office.  Whether there will be a significant change to regulations and tax reform, and how those changes may effect the market, remains to be seen.

The hope is that there will be a stable real estate framework in which buyers and bellers can best operate. Most analysts nationally and locally are in agreement that despite the rumblings of the current administration, 2017 should remain a strong year for real estate and both buyers and sellers will find opportunities to fulfill their needs.

Here are some topics to keep an eye on:

Recovering Sales

Home sales in California are expected to increase 1.4 % up slightly from 2016 according to the California Association of Realtors (CAR).  In some regions, such as San Diego, factors such as low inventory and high demand and increases in interest rates may have a greater impact on sales.

Understanding Demographics

Millennials are expected to have a great impact on the market this year according to Realtor.com.  A little more than half of potential buyers are expected to be first-timers, with more than 60% of them being under 35 years old.

Construction Market

Although the health of the U.S. construction market is good we are still under historical norms.  Builders are constructing fewer homes in the lower priced categories where demand is strong and companies are facing higher land and permit costs along with regulatory restrictions.

Interest Rates

After years of super historically low rates we will likely see some increases on the horizon as the Fed makes adjustments and inflation fluctuates.  Still, for 2017 we should still be in the historically low category as seen by this rate chart showing 2000-2016 rates. For the first few months of 2017 rates have been in the low 4%.

 

 

Consider me your #1 resource for all things Real Estate! Selling, buying, upsizing, downsizing, relocating, investing, vendor referrals, shoulder to cry on during renovations and more.  Just send me an email or call me at 619-888-2117. 

Propositions 60 and 90 and how they can help you save money on your next property purchase

March 9, 2017

save-money-6090

Information provided by BOE.CA.GOV

What is Prop 60?

The perks associated with being 55 or older don’t just come from AARP !  Prop 60 allows transfers of base year property values/property taxes within the same county (intracounty). This can save you thousands of dollars in property taxes on the new property you purchase!

What is Prop 90?

It allows transfers from one county to another county in California (intercounty) and it is the discretion of each county to authorize such transfers. So if approved, your savings can be put into effect for a purchase in another county!

What are the eligibility requirements for Propositions 60/90?

  1. You, or a spouse residing with you, must have been at least 55 years of age when the original property was sold.
  2. The replacement property must be your principal residence and must be eligible for the homeowners’ exemption or disabled veterans’ exemption.
  3. The replacement property must be of equal or lesser “current market value” than the original property. The “equal or lesser” test is applied to the entire replacement property, even if the owner of the original property purchases only a partial interest in the replacement property. Owners of two qualifying original properties may not combine the values of those properties in order to qualify for a Proposition 60 base-year value transfer to a replacement property of greater value than the more valuable of the two original properties.
  4. The replacement property must be purchased or built within two years (before or after) of the sale of the original property.
  5. To receive retroactive relief from the date of transfer, you must file your claim within three years following the purchase date or new construction completion date of the replacement property.
  6. Your original property must have been eligible for the homeowners’ or disabled veterans’ exemption either at the time it was sold or within two years of the purchase or construction of the replacement property.

The original property must be subject to reappraisal at its current fair market value at the time of sale, unless the buyer(s) of your original property also qualify the property as a replacement property for a base year value transfer due to disaster relief or a base year value transfer for a severely and permanently disabled person. Therefore, most transfers between parents and children will not qualify.

This is a one-time only benefit. Once you have filed and received this tax relief, neither you nor your spouse who resides with you can ever file again, even upon your spouse’s death or if the two of you divorce. The only exception is that if you become disabled after receiving this tax relief for age, you may transfer the base year value a second time because of the disability, which involves a different claim form.

Please contact me to discuss how you can take advantage of these tax saving opportunities! Just send me an email or call me at 619-888-2117. 
 

(For a more detailed Q & A regarding 60/90 visit this site or call the Assessment Services Unit at 916-274-3350.)

 

Should I Pay My Mortgage or Other Loans Off Sooner or Later

March 2, 2017

mortgage-pay-off

 

Clients often assume it is always a good thing to pay a mortgage (and other debts like student loans) off sooner vs. later- however that is not always true.

Here are some things to consider and discuss with financial professionals like CPAs and Financial Planners:

1) How does your mortgage interest rate compare to rates on your retirement and investment accounts? The “extra” money you may be contributing to pay down the mortgage might earn more elsewhere if you have a low mortgage rate.

2) If you think you might apply for need-based college aid for your children home equity could count against you with some colleges because the equity is viewed the same as money in the bank.

3) There can be tax advantages to writing off mortgage interest and if that disappears early your tax liabilities could increase.
Remember, you can’t get the money back from the bank once you pay down the mortgage, however if after doing your research you decide paying off the mortgage early is to your advantage, Bankrate offers these illustrated options.

Consider me your #1 resource for all things Real Estate! Selling, buying, upsizing, downsizing, relocating, investing, vendor referrals, shoulder to cry on during renovations and more.  Just send me an email or call me at 619-888-2117. 

Home Projects and Resale ROI

February 23, 2017

Consider me your #1 resource for all things Real Estate! Selling, buying, upsizing, downsizing, relocating, investing, vendor referrals, shoulder to cry on during renovations and more.  Just send me an email or call me at 619-888-2117. 

resale-roi

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