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

Don’t Fear the Lender!

Don't Fear the Lender3 Changes that Make Qualifying for a Home Loan Easier

In recent months, lenders have made it easier for first-time buyers and other would-be buyers to quality for a home load. Sure that sounds great, but what does it mean?

Because these  changes loosened lending restrictions, more would-be home buyers can become homeowners in today’s real estate market, Keep reading if you have high debt-to-income ratio, educational loan debt or think you don’t have enough money for a decent down payment. The changes that lenders have implement can help you secure a part of the American dream this year.

#1 Debt-to-Income Ratio

If you haven’t applied for a home load for awhile, there are some changes that could positively affect your ability to secure mortgage dollars today. If you have debt-to-income ratio is quite high, don’t lose hope. Under new rules set by Fannie Mae and Freddie Mac, the investors behind most mortgages who set the guidelines for qualify for home loans, your monthly debt-to-income ration can now be as high as 50%. That means if all your deb including your mortgage payment, car loan, student loan, credit card debt and other debts take up half of our income, in many cases you can still qualify for a home loan.

#2 Student Debt

One change that affets a large number of mortgage applicants is that lenders are no longer required to calculate a student loan payment as 1% of the outstanding balance of the student loan, which in many cases, can b a high number.

Instead, lenders can now use theamount listed on the applicant’s credit report, which is typically a smaller number, especially in the case ofthose who are covered by the invcome-based, reduced-payment plans. This is a huge change for those with school debt.

Previously, if the total student loan amount was $50,000, lenders would add 1%, or in this case, $500, to the applicant’s monthly debt load, even if the applicant was paying a required amount of just $75 monthly. Lenders now use the actual amount being paid towards student debt and this method will help many more borrowers with student loans secure mortgage dollars.

#3 Down Payments

Home buyers will also find more lenders being flexible on down payment amounts. The standard 20% down payment is rare (and often unattainable) and many lenders allow 3% down with some options for even less. The better your credit score, the more likely you can qualify for a mortgage with a lower down payment.

Don’t Forget

Keep in mind that just because a lender approves you for a certain dollar amount for a home load,you don’t have to use all that money. In face, you know your financial situation best. If the proposed monthly mortgage payment seems to high for your comfort level, consider finding a home that costs less and requires a smaller mortgage.

All lenders are not created equally. Therefore before you go house hunting – hopefully with yours truly, Lucy Garber – it’s a good idea to talk to several lenders to find out what loan programs you can qualify for and then get pre-approved for a home load. The pre-approval will tell you exactly how much money a lender will give you for a home. With this information you’ll save time focusing only homes within you price range.

Republished from Lucy Garber’s RE/MAX Estate Properties/HomeActions, LLC newsletter Vol. 22, No. 6.

 

Want to Refinance Your Mortgage But You’re Being Turned Down?

Can HARP help you refinance your mortgage?

Especially with the current record-low interest rates, many homeowners would like to refinance their mortgage.

Are you having difficulties? The federal program HARP might be able to help you. Here’s how it works.

Is your mortgage rate above today’s rates?

Is your house worth less than your current mortgage amount?

Are you unable to refinance into a lower-rate mortgage or convert your adjustable-rate mortgage to a fixed-rate mortgage?

Then the federal Home Affordable Refinance Program (HARP) is an option you should explore.

HARP is one of two components of the federal Making Home Affordable Program for struggling homeowners. Its counterpart, the Home Affordable Modification Program (HAMP), offers loan modifications if you’re behind on your payments or need help exiting gracefully if you can no longer afford your home.

HARP, on the other hand, helps you refinance your home with a brand new mortgage.

What Are the Benefits of HARP?

Your savings from refinancing using HARP could be substantial. The White House says the typical homeowner using HARP could reduce their mortgage payments by about $2,500 a year. Like any refinance transaction, HARP loans come with fees, so you’ll have to weigh the costs and benefits for your specific situation.

The good news is that HARP’s fees are less than the fees for typical refinances. For instance, you won’t have to pay for a full appraisal if the lender can get a reliable automated appraisal for your home. And Fannie and Freddie will waive for borrowers some fees they usually charge lenders (which lenders would normally pass on to you).

What Are the Qualifications?

Your mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
Your current lender had to sell your mortgage to Fannie Mae or Freddie Mac before June 1, 2009. Check with your lender to make sure that happened.
This must be your first HARP refinance. You only get one Home Affordable refinance, so if you’ve used the program before, you can’t use it again (although there’s a loophole for those with a Fannie Mae loan refinanced between March and May of 2009).
You need the right balance between what you owe and your home’s value. The minimum is that you owe 80% of your home’s value (for example, owing $80,000 on your $100,000 home). If you owe less than 80%, you can’t use HARP. If you owe up to 105% (say your home is worth $100,000 and you owe $105,000), you can refinance into an adjustable-rate mortgage. If you owe above 105%, you have to go with a fixed-rate mortgage. There’s no cap on how much you can owe above what your home is worth.
If you’ve paid your mortgage late even once during the past six months, you can’t use HARP, but if you had a late payment between 7 and 12 months ago, you’re fine.
If you can meet those criteria, you have until Dec. 31, 2015, to apply for a HARP refinance through either your current lender or a new lender.

Should You Apply?

HARP makes sense if you owe more than your house is worth, which is preventing you from refinancing, according to Bob Walters, chief economist at Quicken Loans. You’ll still pay full-market rates for a HARP refinance, not a discounted rate or payment that you might get with a loan modification.

As a rule of thumb, for fixed-rate mortgages, you’ll want your new rate to be at least a half-point better than your old one.

Lowering your interest can pay off immediately. Let’s say you took out a 30-year, fixed-rate mortgage at 6.5% for $176,800 at a monthly payment of $1,117.50 five years ago.

Today, you’d still owe $168,065. If you refinance that balance into a new 30-year loan at 4.5%, your monthly payment would drop to $851.56, saving you about $266 a month. Or, you could refinance into a 15-year fixed-rate loan, pay about $168 a month more, and pay your loan off about 10 years earlier.

HARP might also make sense if you can convert an adjustable-rate mortgage to a fixed-rate mortgage. Even if an ARM’s monthly payment is low now, it’ll go up if rates rise.

When applying for HARP, you need paperwork just like any other mortgage application:

  • Pay stubs
  • Tax returns
  • Mortgage statements
  • Account balances
  • Debt totals (for credit cards, student loans, car loans, and such)
  • Details about any second mortgages or home equity lines of credit

Pay attention to the fees associated with the refinancing, which the lender must disclose up front, and ask if those costs can be rolled into the new loan if you’re strapped for cash.

Tips to Make the Process Go Smoothly

To keep the process moving, ask your lender for a list of the documents it will need. Give yourself two weeks to collect everything.

If possible, submit the entire packet together via certified mail. Sending in documents piecemeal could result in lost paperwork and your loan application falling to the bottom of the pile, says Nicole Hall, editor of LendingTree.com. Keep detailed records of any phone calls you make, and dates you mail or fax correspondences.

There are companies that will offer to take care of the paperwork for a fee, but you don’t need to pay. You can access free help through a housing counselor approved by the U.S. Department of Housing and Urban Development. Counselors will help you understand the Making Home Affordable program and aid in gathering the documents needed for your loan servicer.

Don’t qualify for HARP? Then maybe its sister program, HAMP, is for you.

By: Donna Fuscaldo


Need help? Give me, Lucy Garber a call at (310) 293-4866.  I can refer you to some great mortgage brokers I’ve worked with over the years.

Should You Be Worried if Your Mortgage Is Sold?

has your mortgage been sold?

You open your mail and you receive a (another?) notice that the mortgage for your home has been sold to another financial institution. You know to send your monthly payment to another address and your mortgage statements now come from a different company. But should you be worried?

The process of applying for and maintaining payments on a mortgage can be complex — primarily because of what happens behind the scenes. To make it even more confusing, the company that originally lent you the money to buy your new home will likely sell your mortgage to an investor. This is called the secondary mortgage market.

What’s the secondary mortgage market?

This is where investors — such as Freddie Mac, Fannie Mae, pension funds, hedge funds, other mortgage companies, and banks, for example — purchase assets or loans, including mortgages, as well as the bonds that finance these assets.

While lenders tend to hold high-balance loans in their portfolio, they usually sell most mortgages because that’s the easiest way a lender can generate cash to make new mortgages. Without the secondary mortgage market, lenders wouldn’t be able to originate as many mortgages as they do.

Investors like snapping up mortgages because they’re backed by a tangible asset that you can see and touch, and that builds value over time — your home. Generally, house values go up, but in the event that they don’t and a borrower defaults, the equity in the home, or your down payment, is intended to cover this loss. This is why most lenders restrict a mortgage’s loan-to-value ratio, or LTV, to 80% of the house value.

Does this sale affect me, the borrower?

Yes, and it starts at the application process. But you shouldn’t be worried; it’s nothing you haven’t probably already heard about, especially if you’re been doing your homework. (And law protects you from abuses by the new owner of your loan).

For a lender to be able to sell in the secondary mortgage market, the loans need to meet the requirements of the investor buying them; it makes sense that investors are willing to pay more for higher-quality mortgages.

In essence, mortgages are underwritten so that they can be sold for the best possible price. This is why underwriting guidelines can be strict and why lenders want to see proof of employment and income to make sure you can afford to repay the loan without stretching your budget.

The interest rate you’re offered also reflects the price that investors will pay for your mortgage — and lenders use all kinds of info such as credit score and debt-to-income ratios to determine your overall mortgage-worthiness (read: likelihood of repayment). It’s easier to sell a mortgage in the secondary market when an investor is confident the borrower is unlikely to default.

What happens to borrowers who can’t repay?

The Consumer Financial Protection Bureau (CFPB) works to protect someone who is struggling to pay the mortgage. Even though a new company now owns the loan, this company still has to follow standards to collect on a delinquent mortgage. To prevent servicer abuses, servicers are required to reach out to borrowers to help them solve the problem through options such as a loan modification or short sale before foreclosing on a loan. Servicers are also required to inform borrowers about interest rate changes and balances, for example, so that there are no surprises.

Will the terms change once my mortgage is sold?

Mortgages can be modified, but not unless the borrower and lender both agree on the new terms. The Real Estate Settlement Procedures Act, which also is enforced by the CFPB, prohibits lenders and servicers, as well as any subsequent companies that own your loan, from changing the terms of your mortgage without your consent.

Unless you ask that the interest rate or another term on the note be changed and the lender or new owner agrees, or you agree to a change the lender or new owner proposes, the new owner of your mortgage can’t make any changes.

Still confused?

Call or text me, Lucy Garber, at (310) 293-4866. With over 20 years in the real estate industry, I understand how real estate financing works.