A number of people recently asked us if they could borrow money from their 401(K) or mutual fund account and use that to pay for their down payment. The answer is yes, and here are the underwriting guidelines:
If the 401(K) is being listed as an asset on the loan application, the total amount of the 401(K) must be reduced by the amount that was borrowed. However, the 401(K) loan payments do NOT have to be counted as liabilities against the borrower. This is a great way to secure the funds for a down payment or closing costs without increasing a borrower's debt-to-income ratio.
If the buyer borrows money against a non-liquid asset (real estate, cars, etc.) then the payments do have to be counted as liabilities.
Ever wonder what the processing fee and the underwriting fee are for on a Good Faith Estimate and final settlement statement?
The processing fee pays for the person who does all the paperwork involved in getting a loan into underwriting, taking care of any conditions, and making sure the loan closes. The processor orders the appraisal, the insurance certificate, the flood cert, any verifications that are needed, etc. If the loan officer hires a processor to do this work for him, then the processing fee goes to the processor. If he does the work himself, then he keeps the processing fee for himself. The typical fee for processing is between $350 and $450.
The underwriting fee goes to the lender and pays for the person who determines whether the borrower and the property fall within the loan program guidelines (credit, income, assets, etc.). The underwriter verifies everything that the processor has sent to the lender. The underwriting fee is different for every lender, but typically, the fee is about $625.
We are often asked if the property tax credit (the pro-rated share of the property taxes that is taken out of the seller's account and put into the buyer's account) can be used to pay a part of the buyer's down payment requirement.
The answer is no. However, the property tax credit can be used to pay some of the buyer's closing costs.
As an example, assume someone is buying a house for $100,000 and the down payment is 3.5% of the purchase price, or $3,500. The property tax credit cannot be used to pay any of this amount. It doesn't matter how large the tax credit is - the buyer still has to contribute $3,500 towards the transaction. Depending on the type of loan, the $3,500 can come from a relative or a down payment assistance program, but it can never come from the property tax credit.
By now, you would think everyone knows all about the $8,000 tax credit. Don't make that assumption, because many of your prospects do NOT know about it, and even fewer understand it. Here's what they need to know:
- If you (or your spouse, if you are married) have not owned your main home in the past three years, you are eligible for the tax credit. A "main home" is defined as the house you live in most of the time. This means you could have owned investment properties, or even a second home, as long as you did not own your "main home".
- If you have already filed your 2008 taxes, you can get the tax credit this year by filing an amended return. An amended return form is very easy to complete - it is not a full tax return.
- You need to purchase the house between January 1, 2009 and November 30, 2009 to get the credit.
- You do NOT have to pay the credit back.
- This is a tax credit, not a tax deduction, so you get all the money in your fist.
- If the house you're buying is less than $80,000, then you only get 10% of the sales price as a credit - not the entire $8,000. A $70,000 house would give you $7,000, a $60,000 house would give you $6,000, etc.
- If you make more than $75,000 and you're single, or more than $150,000 as a couple, the credit starts to get phased out.
- You need to keep the house as your main home for 3 years to keep the credit.
We have seen a big increase in business because of this tax credit. Make sure your buyers know about it. The biggest mistake you can make in sales is assuming your prospects know what you know. They usually do not and are looking to you to educate them. If you don't educate them, they will move on to the next sales person.
Check out our web site for access to the IRS form to claim the credit. Print it out and give it to all your prospects - it's a great sales tool. Who would have thought you could use an IRS form as a sales tool?
Need 100% financing with an FHA loan WITHOUT getting a gift or a loan from a relative? Check out CHFA loans. The Colorado Housing and Finance Authority (CHFA) can't quite get you to 100%, but they can get you to 99.395%, which is pretty close.
Only a small percentage of mortgage brokers and lenders are approved to sell CHFA loans, so you might not know how good they are. Here's how they work: There are two loans. The first mortgage is a regular FHA loan. It requires a 3.5% down payment.
We have a Quick Reference Guide for CHFA loans on our web site. Follow the link at the bottom of our home page. Here's the link to get to our home page:
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ActiveRain Corp. is not responsible for the accuracy of the site's content (which is written by members of the ActiveRain Real Estate Network) and does not endorse the views of the real estate agents, mortgage brokers, and others listed here.
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