Down Payment

Top Real Estate and Mortgage Headlines for December 2nd

In case you didn’t hear the news, the unemployment rate has fallen down to 8.6% a 2-1/2 year low. But before you get too excited, make sure to understand the reason behind the drop in November’s Unemployment Rate.

As we officially enter into the busiest of holiday seasons it seems as if real estate and home loans are on the back burner. Needless to say, there are great offers for both home buyers and homeowners throughout Northwest Indiana and the suburbs of Chicago.

Although real estate might not be at the top of our agenda, let’s take a minute to review what the top real estate and mortgage headlines are today according to the National Association of Realtors.

• 7 Housing Markets Buyers Are Eyeing Online
  Sunbelt cities are attracting more attention online from would-be buyers.
• Mortgage Rates Continue to Hover at Record Lows
  “The extraordinarily low mortgage rates of the past month may provide a needed spur to housing activity,” Freddie Mac’s chief economist says.
• Federal Agencies Crack Down on HAMP Fraud
  Some scam artists are preying on home owners looking to refinance using the government’s Home Affordable Modification Program. How do home owners tell the legit HAMP issuers from the fraudulent ones?
• The Perfect Holiday Gift: A Down Payment?
  Families feeling a little extra generous this holiday season may offer loved ones help with a down payment on a home. But they need to make sure they follow the government’s rules for down-payment gift-giving.
• C.A.R. Goes Bilingual in Online Property Search
  With Spanish being the second most widely spoken language in the U.S., and Spanish speakers making up 35 percent of California’s population, the California Association of REALTORS(R) has rolled out a Spanish-language property search site.
• Winter-Selling Tips for Overcoming the Gloom
  Selling a home in the cold, dreary winter months may not be ideal, but there’s still plenty you can do to get a home to standout.

These are the top real estate and mortgage headlines for Friday, December 2, 2011.

Want to know how these national real estate headlines could impact you right here locally in Northwest Indiana? Subscribe to this blog, Today’s Real Estate Reality, and let our collective years of real estate experience in Northwest Indiana guide you to an informed and successful real estate transaction today.

Down Payment

The Right Way To Receive A Cash Gift For Downpayment

As lenders tighten mortgage guidelines for Dyer Indiana home buyers, minimum downpayment requirements are increasing.  Several years ago, you could finance a home with nothing down. Today, most conventional mortgages require at least 10 percent.

Anecdotally, guideline changes have led to an increase in the number of home buyers accepting cash gifts from family.

Gifts are allowed in most cases but the problem is, if you don’t accept the gift in a “lender-friendly” way, the mortgage underwriter could reject it, and negate it.

You can’t just deposit a cash gift into your bank account. You have to follow a series of steps and keep records.

1. Provide an acceptable gift letter signed by all parties
2. Provide documentation of the gifter’s withdrawal of funds via teller receipts
3. Provide documentation of the giftee’s deposit of funds via teller receipts

Lenders require these 3 steps for two basic reasons.  First, they want to make sure that the cash gift is “clean” (i.e. not laundered).  Second, they want to make sure the gift is really a gift and not a loan-in-disguise.

It’s why lenders typically require that the loan application be accompanied by a signed, dated letter.

For example:

I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property].

This is a gift — not a loan — and there is no expectation of repayment.

Signed,
[Signature of gifter]

As an additional step, home buyers receiving cash gifts should make sure that gifted funds are not commingled at the time of deposit. If the cash gift is for $10,000, therefore, the bank’s deposit slip should indicate that a $10,000 deposit was made — nothing more, nothing less. Don’t add a random $100 deposit to the transaction, in other words. The $100 deposit should be a separate transaction.

It’s also worth noting that gifting funds between family members can create both legal and tax liabilities.  If you’re unsure about how donating or receiving a gift may impact you, call or email me directly.  If I can’t help you with your questions, I can refer you to somebody that can.

Down Payment

The Reality of a 401(k) Withdrawal to Achieve a Lifetime Opportunity of Home Ownership

As downpayment requirements increase, anecdotally, home buyers are tapping 401(k) plans for extra cash.

Classified as a ”hardship withdrawal”, loans against your retirement funds can be cheap and simple.

1. There’s no credit check or approval process
2. There’s only a small set of paperwork
3. Money can be available in as little as a day

But just because you can get access to your retirement money doesn’t mean that you should.  401(k) withdrawals should only be made after careful consideration. 

There are some serious negatives, specifically with respect to taxation. 

If you open a 401(k) loan and don’t repay according to the loan terms, the withdrawal ends up getting taxed as income, plus a 10 percent penalty for people under 59 1/2. 

That’s a stiff penalty.

But, even if you do repay the loan on time, you’re still leaving yourself subject to double-taxation. 

• Taxation #1 occurs when the loan is repaid using post-tax dollars
• Taxation #2 occurs upon final withdrawal at retirement

Furthermore, when you borrow against a 401(k), you assume the opportunity costs of having that money out of the market.  Since March, the Dow Jones Industrial Average is up 44 percent.  If your 401(k) was empty, you’d have missed those gains forever.

Taking a loan against a 401(k) isn’t necessarily a bad idea, there just may be better choices. If you’re planning to withdraw from your 401(k) to make a downpayment on a home, talk with a qualified financial professional first.

You can never have too much good information.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.