Month: January 2021

A great place to look for funds to help you when you are purchasing a home is your employer retirement plan, also called a 401(k). Options here may include different types of loans and withdrawals, including what are called hardship withdrawals. It is a great resource if you are able to access the funds. Different plans will have different provisions, so check with either your human resources department or your 401(k) plan administrator.

With general purpose loans and primary residence loans, there will be limits as to how much you can access, and you may be asked to provide documentation, such as a signed sales contract, for a primary residence loan to prove that you are, in fact, purchasing a home.

Another way to access funds is through a hardship withdrawal. A hardship is a specific circumstance when you can access funds from your 401(k) when you otherwise wouldn’t be able to.

While purchasing a home wouldn’t necessarily be a hardship for you, it is one of several housing-related reasons that the IRS allows you access to your money. Other similar reasons include the need for funds to avoid eviction or foreclosure. 401(k) plans, by the way, aren’t required to offer either loans or hardship withdrawals, so contact your plan administrator or search your plan’s website for more information. The document you’ll be looking for is called the 401(k) Summary Plan Description. This can often be dozens of pages long, but it covers all aspects of the plan, including what access you have to your money.

Keep in mind that any type of withdrawal will often be subject to taxation and may have early withdrawal penalties associated with it.

Let me help you review your options when taking money from your 401(k) to purchase a home. I am just a call or email away.

A balloon loan is a mortgage where, at some point in the life of that loan (at perhaps three, five, seven or 10 years), the entire outstanding balance must be paid in full. To be clearer on this, the loan would more than likely paid back by refinancing it into a new loan.

So how does it work to begin with? A balloon loan is similar to a 30-year fixed-rate mortgage in how you qualify for it, meaning the same income, credit and asset requirements.

The reason that someone might want to take a balloon loan, as opposed to a 30-year fixed-rate loan, is that the interest rate (and hence, the payments) are normally lower on the balloon loan. People who take balloon loans often enter the transactions with the expectation that they will be selling the properties before the balloon payments become due.

The drawback to a balloon loan, if there is one, is that if and when you reach the point where the balloon payment is due, to get into your new loan, you could be paying a significantly higher interest rate than the one with which you started.

For this reason, if you are looking to take out a balloon loan, you want to make reasonably sure that you are going to be out of the property when the loan comes due, or perhaps stay with the 30-year or even a 15-year fixed-rate option.

Would you like to learn more about balloon loans? Call or email me and we can go over the details and what is the right fit for you.