Millennials Homebuyers – Many Borrowing From Retirement Fund

Millennials Home Buyers

Millennials (ages 25 – 34 years old) are important because they are currently the largest generation since baby boomers, i.e., 25% of the U.S. population. With almost 10 million living in our state, California has the largest share of them – 13% of the California population.  Millennials are increasingly more active homebuyers.*

U.S.-wide, buyers 37 years and younger are the largest share of home buyers at 36%.  Sixty-five percent of these are first-time home buyers.

But housing inventory shortage means higher prices. And coming up with the required funds is tough for many millennials.  This has led to an alarming trend of 1 in 3 millennials using their retirement accounts to finance their home purchase.  Read more about this in this CNBC article below.

Lucy Garber
Living in and selling homes in the South Bay for over 25 years.
(310) 293-4866
Email: LucyGarber1@yahoo.com
RE/MAX ESTATE PROPERTIES
DRE# 0110009

The ‘alarming’ way 1 in 3 millennial homeowners get the money to buy homes

Roughly 98 percent of people want to own a home, according to a recent Bank of the West survey. But coming up with the required funds can be tough — especially for cash-strapped millennials in today’s competitive market.

To finance their purchases, one in three millennial homeowners withdrew money from or took loans against their retirement accounts, according to Bank of the West’s survey of over 600 U.S. adults ages 21-34. Meanwhile, one in five millennials who are planning to buy a home expect to do the same.

It’s an “alarming” trend, according to Ryan Bailey, head of Bank of the West’s retail banking group. “Millennials are so eager to become homeowners that some may be inadvertently cutting off their nose to spite their face.” He recommends relying on savings rather than dipping into your retirement funds.

“Borrowing from your retirement may make sense in special circumstances, but it’s definitely not a recommendation we tell people to do,” Bailey tells CNBC Make It.

What’s the problem?

If you don’t have quite enough saved for your first home, you are allowed to pull money out of your retirement accounts, such as a 401(k) or an IRA. But while dipping into your retirement savings may help you put down a bigger down payment and lower your mortgage rate, it also may mean those savings could experience a long-term setback.

Think of it this way: You are not allowed to draw on your future Social Security payments to buy real estate and your grandparents weren’t allowed to use their pensions, Colorado-based financial planner Kristin Sullivan tells CNBC Make It. “For millennials, the 401(k) is going to be the major component of their retirement. It is a sacred pact with your older self to take care of that older self,” she says. If you can’t afford to buy a house without raiding your retirement plan, she adds, you may not be able to afford to be a homeowner at this point.

Technically, you can withdraw the money from a Roth IRA if you’ve had one for at least five years: Those under 59 ½ years old can take out up to $10,000 without penalty if you’re a first-time homebuyer, according to the IRS. And because you’ve already paid taxes on this money, you won’t have to worry about any additional fees.

If you’ve been contributing to your Roth IRA for less than five years, you can still pull out up to $10,000 — but you’ll have to pay income taxes on the amount.

If you have a 401(k), you’ll want to borrow the money as a loan, rather than taking it outright. Getting the money as a loan (up to 50 percent or $50,000, whichever is lower) helps you to avoid income taxes and a 10 percent early withdrawal penalty. But keep in mind that, as with any loan, you’ll have to pay the money back, plus interest. Also, should you fail to pay back the loan on time, you may incur a 10 percent early withdrawal penalty.

Worse, the terms of the loan generally require that you keep your current job. If you want to switch or are let go for any reason, the full balance of the loan is typically due within 60 days. “This is even the case if you are fired from your job. You would have to pay back a loan at what may be the most inopportune time,” New York-based financial advisor Paul Tramontozzi tells CNBC Make It.

What are the alternatives?

Before using retirement savings to purchase a new home, review your current spending. Look for any expenses you can cut to save money.

“If someone is contemplating dipping into retirement savings, they likely they haven’t been able to save up the required down payment to buy the house in the first place, which likely means they don’t have a good handle on their finances to begin with,” Illinois-based advisor Stephen Jordan tells CNBC Make It.

Millennials should also consider scaling down their home dreams in order to reduce the cost. Take a hard look at your finances so you don’t get in over your head, Danielle Hale, chief economist for Realtor.com, tells CNBC Make It. Just over 40 percent of millennial homeowners said in a recent survey said they had regrets after they purchased because they felt stretched financially.

“It takes being honest with yourself when you’re making a home purchase,” she says, adding that you should take advantage of filters on home search sites to make sure you’re not shopping for something that’s too expensive.

“With careful financial planning, millennials can have it all – the dream home today, without compromising their retirement security tomorrow,” Bailey says.

Source: CNBC Money | Megan Leonhardt
*Reference:  Brookings Institution | William Frey

Hot New Listing in Rolling Hills Estates – Open House July 7

Listing Price: $998,000

Ready to live in beautiful Rolling Hills Estates? Come see your dream home!

Single level home with 3 bedrooms, 2 full baths, featuring an open floor plan with plenty of natural lighting. The spacious family room has vaulted ceilings, track lighting and a fireplace. The original hardwood flooring covers all living spaces and bedrooms. The bright and open kitchen has a counter with seating for four and the dining and family rooms adjoin and have direct access to the backyard. The large, flat backyard features a gorgeous lawn and mature trees lining the perimeter, providing great privacy.

Conveniently located within walking distance to award-winning Silver Spur Elementary and Peninsula High School. This home is priced to move quickly – it is currently the lowest priced home listed in Rollingwood and is a must see!

OPEN HOUSE
Saturday July 7, 2018

From 1:00-4:00 PM

5296 Willow Wood Rd, Rolling Hills Estates, CA 90274
Listing ID: PV18160978
1,682 sq. ft.
Built: 1956

Call or text Lucy Garber (310) 293-4866 to learn more and view home.
CalBRE License #: 1100090

Another Torrance Home Sold by Lucy Garber!

5635 Greenmeadows St. Torrance CA SOLD

 

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5635 Greenmeadows St Torrance 90505
Near the beach with a great city view!

$1,065,000

It’s a great time to sell in the Los Angeles South Bay. Please call me if you want an experienced, trustworthy real estate profession!

Your Friend in the Business,
Lucy Garber
(310) 293-4866
RE/MAX Estate Properties
License #01100090

Multi-level San Pedro Townhome on the Market

Picture this…

Entertaining friends in your gorgeous remodeled townhome while overlooking an AMAZING view of the Harbor and Bridge.

This 2 bedroom 2.5 bath end unit in Vista Del Oro does not disappoint. Main floor living area and dining area is all open with a beautiful fireplace and balcony to enjoy that view! The kitchen was redone with shaker style white cabinets, black granite counter tops and breakfast bar. The flooring throughout most of the home is “wood look” tile and super durable. Great for pets. All 3 bathrooms have been tastefully redone with a designers flair.

The floorplan is perfect for a roommate situation as both large bedrooms can have their own bathroom. Rare bonus here…an over-sized private 2-car garage with direct access to the home. Large closets and tons of storage.

Small complex with low HOA fees.

Don’t miss out on this move in ready beauty.

921 W. 18th Street, #4, San Pedro, CA 90731
Listing ID#: SB18048712
List Price: $469,999
Living Area: 1,273 sq. ft.
Lot: 5,011 sq. ft.
Built: 1986

Call or text Lucy Garber (310) 293-4866 to learn more and view home.
CalBRE License #: 1100090

Sell Your House this Summer: Do’s and Don’ts of Homebuyer Incentives

Homebuyer incentives can be smart marketing or a waste of money. Find out when and how to use them.

Be sure you’re sending the right message to buyers when you throw in a homebuyer incentive to encourage them to purchase your home.

When you’re selling your home, the idea of adding a sweetener to the transaction — whether it’s a decorating allowance, a home warranty, or a big-screen TV — can be a smart use of marketing funds. To ensure it’s not a big waste, follow these do’s and don’ts:

Do use homebuyer incentives to set your home apart from close competition. If all the sale properties in your neighborhood have the same patio, furnishing yours with a luxury patio set and stainless steel BBQ that stay with the buyers will make your home stand out.

Do compensate for flaws with a homebuyer incentive. If your kitchen sports outdated floral wallpaper, a $3,000 decorating allowance may help buyers cope. If your furnace is aging, a home warranty may remove the buyers’ concern that they’ll have to pay thousands of dollars to replace it right after the closing.

Don’t assume homebuyer incentives are legal. Your state may ban homebuyer incentives, or its laws may be maddeningly confusing about when the practice is legal and not. Check with your real estate agent and attorney before you offer a homebuyer incentive.

Don’t think buyers won’t see the motivation behind a homebuyer incentive. Offering a homebuyer incentive may make you seem desperate. That may lead suspicious buyers to wonder what hidden flaws exist in your home that would force you to throw a freebie at them to get it sold. It could also lead buyers to factor in your apparent anxiety and make a lowball offer.

Don’t use a homebuyer incentive to mask a too-high price. A buyer may think your expensive homebuyer incentive — like a high-end TV or a luxury car — is a gimmick to avoid lowering your sale price. Many top real estate agents will tell you to list your home at a more competitive price instead of offering a homebuyer incentive. A property that’s priced a hair below its true value will attract not only buyers but also buyers’ agents, who’ll be giddy to show their clients a home that’s a good value and will sell quickly.

If you’re convinced a homebuyer incentive will do the trick, choose one that adds value or neutralizes a flaw in your home. Addressing buyers’ concerns about your home will always be more effective than offering buyers an expensive toy.

By G.M. Filisko for Houselogic