WWYD? Down Payment money

[jlt19]

I'm going to use real numbers b/c it's too difficult otherwise (for me). This is a lot of me also just "talking it out" to find the best solution.

Situation:
Buying $375k house and putting 20% down with a 30 year, conventional loan, so need $75k cash.

Actual cash available in savings:
$49,000 ($33,517 is earmarked for the moment SL interest begins to accrue again)

Actual cash available in brokerage:
$18,000

So, we're almost there. BUT, we're going to be paying $6500 in about a month to a company to fix our balcony in order to sell our house. Putting us around $60k.

Options: 
Sell stocks/MF's to get the other $15k
Borrow from a family member who has the money in savings (making pennies like we all are) obviously assuming they agree to it.
Least viable: borrowing from IRA or 401ks

Now, the borrowing would be minimal time b/c we ARE going to sell our house as well but don't want to put a ton of pressure on ourselves to close on the same day and all of that. Assuming our house sells for $350k, which is what the agent wants to list it for, we owe $188k, so after closing costs, we still have more than enough to pay our savings and anything/else back quickly. 

I know mixing family/money isn't recommended, but I hate to sell anything right now, only to have it go back up and then what? I buy in higher? Or I guess could just wait it out until the market corrects a bit? 

[mccallister84]

Has the family member offered to lend the money? Is this a parent you would be borrowing from or someone else?


Personally, I would side eye lending money to someone who has it, just has it tied up in the market (in non retirement funds - so it is accessible). But I have found over and over again that money and family does not mix well so I consider any loans to be a gift and if it gets repaid so be it. But that’s my family and I recognize that others are different.

I don’t know - to me it just seems like you’re trying hard to minimize your risk (not wanting to close on the same day, not wanting to pull money out of the market) by using someone else’s cash. I don’t doubt that you’ll repay them but it seems a little un fair to me.

[simpsongal]

I think sometimes you need to certify your DP money isn't a loan (even from family) to secure financing. Just something to consider/look into.

[jlt19]

mccallister84, that's a good point and does seem really unfair/selfish of me. That's why I like to crowdsource here before actually doing things. It would be my mom, and she's loaned us money in the past for a large expense that we paid like a monthly bill until it was paid off. So, this would be a LOT less time and I guess I felt like she could "trust" us due to the other situation, but I didn't look at it like you said.

simpsongal, I thought of that too, but then considered, had I asked to borrow the money, borrow it for the balcony work, so then it actually wouldn't go in/out of my accounts and look suspicious.

[mccallister84]

Jun 24, 2021 12:15:56 GMT -5 jlt19 said:

mccallister84, that's a good point and does seem really unfair/selfish of me. That's why I like to crowdsource here before actually doing things. It would be my mom, and she's loaned us money in the past for a large expense that we paid like a monthly bill until it was paid off. So, this would be a LOT less time and I guess I felt like she could "trust" us due to the other situation, but I didn't look at it like you said.

simpsongal, I thought of that too, but then considered, had I asked to borrow the money, borrow it for the balcony work, so then it actually wouldn't go in/out of my accounts and look suspicious.

Assuming you and your mom are close I’d probably just casually bring up how you are planning to pay for everything - and mention that you’ll be selling investments to cover the shortage - that gives her the opportunity to say “what?!?!? Don’t do that I’ll just lend you the money” but doesn’t put any pressure on her.

[just]

Not an expert... but, if one of your reasons is so that you don't have to have to sell immediately in order to buy, that may impact your ability to get your new home's mortgage. Wouldn't it increase your DTI ratio since there may well be a period where you're carrying two mortgages?

[tealblue]

I would probably take a loan from your 401(k) unless your mom offers/you have a relationship where that would work easily. (None of my family has money and are the ones to borrow from me in smaller increments, so I’m not familiar with how relationships work when people do have money.)

I think the 401k loans are easy and assuming you have no risk of losing your job in the next 3-6 months and it would require a payback or tax impact, I’d go for that.

[Susie]

We just bought a house and opted to put less than 20% down at the time of purchase.  We wanted to have cash on hand to do certain renovations before move-in, and we had equity tied up in a house we hadn't yet sold, so we put 5% down with a lender that will allow us to do a recast right after we sell our old house and put the proceeds into paying down the new mortgage.  

We bought the new house 5/26, and our first mortgage payment is due 7/1.  We're closing on our sale on 6/30.  So we'll pay $86 worth of PMI for all of one month before paying down the mortgage to 78% LTV during July.  Then we'll recast, have PMI removed, and hopefully by the 8/1 payment, certainly by the 9/1 payment, be where we want to be.

It doesn't cost much, and is way easier than borrowing money from friends, family, or against a 401k.

[macmars45]

My friends just bought & sold in the Seattle area. They got a bridge loan so they could buy then sell. Is that kind of a loan an option for you? Otherwise I'd do what Susie suggested.

[aspentosh]

Also going to suggest what Susie said. I think it's pretty common in this market.

[jlt19]

Susie, very interesting. I honestly didn't know that was an option. I've talked to a mortgage guy and we are pre-qualified for a bit over the price, so our DITI was ok. Now, at the time we weren't really looking at this particular house and thought we may have to get into a bidding war, so my agent didn't want us to have to be contingent if possible b/c those aren't happening right now, but I guess this wouldn't make it contingent? I'll have to ask him about this option, because I like that idea MUCH better than draining everything and having to borrow from anywhere/one or sell anything.

I was just worried b/c I thought I read somewhere that PMI no longer "falls off" at 80% LTV and is for the life of the loan and I surely didn't want that!

Thanks again, I'll be asking him about this tomorrow!

[Cappy]

Definitely ask about a loan recast. We were in a situation where we had a lot of money tied up in our old house and needed it for the new one and this was an option we were considering. Our broker did a great job of talking us through all of the financing options and scenarios. Another idea he tossed out (made me too nervous) was a new loan that covered both properties assuming we could do 80% LTV on the combo. Ultimately we did a concurrent close and it went smooth.

[janegold]

Our lender wouldn't allow us to recast when we were in this situation last year (bought our new house 3 weeks before we sold our old one) and we were cash poor because I concurrently paid off my student loans and we had to do some work on the new house before we moved in. So we put down 5% cash, borrowed 5% against our 401k, and did a HELOC on our new house for 10%. As soon as we closed on the sale of our old house, we repaid the 401k loan and paid off the HELOC. It was pretty easy but the downside was that having the HELOC, even just for a few weeks, increased our rate by 1/8 of a percent. We refi'd about a year later so it all worked out.

[ellipses84]

Jun 24, 2021 12:05:13 GMT -5 simpsongal said:

I think sometimes you need to certify your DP money isn't a loan (even from family) to secure financing. Just something to consider/look into.

Yeah, this can complicate things during underwriting. It can be viewed as you not really being able to afford the house. It may put your mom in an uncomfortable position of needing to provide proof of a gift (which is actually a loan as you said so I recommend not doing this at all). Having your mom pay for the balcony work is probably wiser and if she does “gift” you money make sure it’s under the threshold for being taxable. I think you have other options a good mortgage broker could help you explore.

The 401k loan is low risk if you are selling your old house and will have the money to repay it. Most policies allow for loans for home purchases.

[Beeps (WOT?*)]

Jun 24, 2021 12:05:13 GMT -5 simpsongal said:

I think sometimes you need to certify your DP money isn't a loan (even from family) to secure financing. Just something to consider/look into.

What about borrowing the money to repair the balcony so the balcony repair money isn't taken from the down payment savings?

[numbers]

I would not borrow from a family member or pull from investments.

I would either do a smaller DP like Susie mentioned or a bridge loan, which is very common.

[wildrice]

I would 100% borrow from my mom in your case - my parents and I have a good relationship, I know they are financially stable and won't put strings on it, so there is no downside. They would rather I borrow from them than lose money on investments, too.

I actually DID borrow money from my parents for our down payment/closing costs. We will have them paid back by the end of this year. If you are talking about paying your mom back within months, I can't see why you wouldn't do that if she's agreeable to it and you have that kind of relationship.

As far as the mortgage issue with a loan from family, we just called it a gift. The mortgage company doesn't care if I Venmo my mom $600 a month to repay the "gift". I think the important thing was just that it was clear my parents wouldn't have any financial right to my house if something went awry. By calling it a gift, my parents assumed the risk that they would not get their money back. Again since we have a good relationship and know each others' financial habits well, this was not something any of us were concerned about.

[Susie]

jlt19 , I have never seen a conventional loan where PMI is for the life of the loan. That's true of MIP on FHA loans, but with conventional financing I'll drop PMI at 78% LTV, which is pretty standard.  I'll have to go 2% more than if we'd had 80% LTV at loan origination, but I can live with that.

Initially I was looking into bridge loans, but neither of the lenders I worked with offered one.  We got our preapproval through our credit union (who also held our mortgage on our old house) while we were hunting for the new house.  I did not want to try to do a concurrent close or a contingent offer in this market, because we'd never win a contract.  A bridge loan seemed like a reasonable option, but our credit union didn't offer one.  Instead they offered a one-time recast which I could use after the sale.  They hyped it up like it was this unique/amazing feature.  When we got into contract, their rates crept up >3%, so I started shopping around.  I found a broker who could get me 2.875%, so I asked him about either a bridge loan or a recast option.  His lender didn't offer bridge loans either, but they allow multiple recasts, with the requirement that you've paid $10k (IDK if it has to be a $10k+ one time payment or a total of $10k in principal), and no more frequently than once a year.  They also had some other nice features:  a float down on the rate, which we exercised right before closing to get down to 2.75% for 30 years, available no-cost extensions if our closing delayed beyond our rate lock, and we were allowed to waive escrow even with only 5% down initially.  The lender is Homepoint Financial.  I haven't gone through the actual process yet of recasting and dropping PMI so I can't vouch for the ease, but so far so good.

This allowed us to accomplish what we wanted, no contingencies, which was necessary in this market (at least on the purchase end).  It's a little bit of a nailbiter in this month owning two houses, with no contingency tying the transactions.  We've just counted on the strength of the seller's market that if our sale fell through for some reason, there are plenty more buyers out there.  We're temporarily pretty cash poor, and if you have an inspection item come up on your sale that you have to fix, that can suck to discover in this phase.  Then there's usually stuff to buy for the new house (so far:  flooring for the whole house, paint for a lot of the house, blinds, light fixtures, ceiling fans...), and paying movers... but that's just the reality, moving is expensive.  We bought a house well under our preapproval, so that helped.  I never asked what our maxes were, with and without contingencies, but we had a preapproval letter for $535k (non-contingent) and could've gone much higher if we were interested in a contingent offer.  The house we bought was $450k.  So that helped.

[jlt19]

Susie, after doing a bit more research, I realize I was wrong about the PMI thing. Probably b/c we've only ever had FHA loans (2 houses and 1 refi), I assumed the rules were the same for everything.

But everything you said is pretty much exactly the situation we're in. We won't win a contract with a contingency, plus I don't want the quick turnaround, especially since we're downsizing a lot. I'd like to get stuff into the new house before deciding what stays/goes. Luckily this house is exactly what we want (floors/paint colors/finishes), except an unfinished basement which we're good with waiting on doing to see how we want to lay it out. I mean, we may change our minds on some colors and stuff, but nothing that we can't live with for quite some time. On the other hand, you're right, I don't want to be cash poor, ESPECIALLY if our house doesn't sell as quickly as we'd hoped.

I'm going to call the mortgage guy I've talked with today about recasting and then fingers crossed that the seller wants to get this all done prior to actually listing AND the court goes her way so she actually CAN sell (weird situation) before summer ends b/c our big selling point for our house is our outdoor space and I'd like that to shine, obviously!

[goldengirlz]

I guess because houses are so expensive here, I can’t imagine NOT pulling from stock for our down payment. Even with the equity in our current house, selling stock is literally the only way we could afford a better house in our VHCOL metro.

I wouldn’t borrow money from family. Too messy. But that’s just me.

[jlt19]

Susie, quick follow up question about escrow. When you recast the loan, did you have the opportunity to not mess with escrow? I would prefer to not have escrow if at all possible.

I talked to our broker and I guess the only lender he works with that will recast if the initial DP is under 20% is US Bank, so I need to do some further digging. He said they'll recast if you're DP is 20%, and THEN you add a big chunk on the principal, but not otherwise. I obviously don't have to use him, but he's already done a lot for me (well, basically just answering my myriad questions) that I'd feel bad if I bailed now.

[Susie]

jlt19, we haven't done the recast yet because we're closing on our sale tomorrow (!!) and that's when we'll have the cash to do it. We're already not escrowing at 5% down (which is amazing and surprising) and I have full expectation that will stay the same afterward. Usually you're required to escrow if you have <20% down, so if we were allowed to close without escrowing, no reason we'd have to start doing it if we pay down the loan.

I'm not aware of any requirement that you have started with 20% down in order to be able to recast with Homepoint, and I dug into the weeds a bit on how many times, how much do you have to pay to be able to recast, etc. I guess we'll see in the coming weeks how it goes.

Don't make a decision on a 30 year mortgage because you'll feel bad about a few hours of work somebody did now. We bailed for another lender after we had a full preapproval. ¯\_(ツ)_/¯ I wasn't going to pay an extra 3/8 %, adding up to thousands of dollars just to be nice to the originator who did our preapproval.

[TR]

Jun 29, 2021 11:05:20 GMT -5 Susie said:

Don't make a decision on a 30 year mortgage because you'll feel bad about a few hours of work somebody did now. We bailed for another lender after we had a full preapproval. ¯\_(ツ)_/¯ I wasn't going to pay an extra 3/8 %, adding up to thousands of dollars just to be nice to the originator who did our preapproval.

I have no advice on any of the rest of this, but THIS THIS THIS. This is YOUR mortgage, it's not your fault he works with limited lenders. Do what's best for you. It's business.