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I will summarize, as i tend to be verbose on these descriptions:
My wife and I are buying a house, and we only have about 5% down. the house we are falling in love with, after negotiaton, assuming a few things on closing costs, etc, there is a chance we'll end up financing around $425K. We have, before searching in this ballpark, secured financing above $417 at 95%, but:
Conventional loans have a better rate, no PMI, potential to escrow our own funds, and the ability to truly shop around for the best rate.
I have plenty in my 401(k) right now, so to take the tax and penalty hit to withdraw the funds we'd need to get the loan amount under $417K would cost maybe $5000
I'm currently asking about current rates and PMI at 95% jumbo vs at 95% conventional, but let's assume a 1% difference in rates, and assume about $200 for PMI vs $0. at this loan amount, that totals ~$450 per month extra.
So, for a $5000 hit on withdrawing 401(k) funds, we could save $450/month. In other words, we'd make up the money in less than a year, and could recoup the 401(k) money in less than 3 years, not cunting the lost potential in growth while in the 401(k)
Thoughts? This is the smart way to go, right?
@ccsauer wrote:I will summarize, as i tend to be verbose on these descriptions:
My wife and I are buying a house, and we only have about 5% down. the house we are falling in love with, after negotiaton, assuming a few things on closing costs, etc, there is a chance we'll end up financing around $425K. We have, before searching in this ballpark, secured financing above $417 at 95%, but:
Conventional loans have a better rate, no PMI, potential to escrow our own funds, and the ability to truly shop around for the best rate.
I have plenty in my 401(k) right now, so to take the tax and penalty hit to withdraw the funds we'd need to get the loan amount under $417K would cost maybe $5000
I'm currently asking about current rates and PMI at 95% jumbo vs at 95% conventional, but let's assume a 1% difference in rates, and assume about $200 for PMI vs $0. at this loan amount, that totals ~$450 per month extra.
So, for a $5000 hit on withdrawing 401(k) funds, we could save $450/month. In other words, we'd make up the money in less than a year, and could recoup the 401(k) money in less than 3 years, not cunting the lost potential in growth while in the 401(k)
Thoughts? This is the smart way to go, right?
Before we go any further, I want to clarify a few things for you. Conventional loans actually do not have better rates (FHA, VA, and USDA are all lower... FHA is just always going to have mortgage insurance for at least 11 years). Additionally, there is only no PMI with a conventional if you put 20% down - otherwise you will have PMI until you reach 20/22% equity. You will have PMI with a 5% downpayment on a conventional loan - regardless of it being a jumbo loan. Finally, you can shop around for the best rate for any type of loan (conventional/FHA/VA/USDA), as it's not only conventional rates that fluctuate lender to lender.
And rather than withdrawing from your 401(k) and getting hit with the penalty/tax, have you looked into the option of taking a 401(k) loan? You can usually borrow against your own 401(k) for the use of a downpayment on a home.
Unfortunately, I can't take a loan from my 401(k).
As for the "better rates," I meant 95% LTV under $417 vs jumbo for the same conditions.
I've also been able to find people doing conventional loans at 95% with no PMI.
even though they say 'no PMI', they increase the interest rate to cover it. So, although your are technically not paying a PMI company, you are still paying a premium.
yes, it is best to get under 417k as there are more stringent requirements in the jumbo space.
if you already have 5% down, search for mortgage companies that will do a 80/15/5 loan....it's a 2nd mortgage product, but it gets you out of the jumbo space. there aren't many lenders who offer this product, and those that do will more than likely require at 700 minimum mid-score
TD Bank in MA offered us a 80/10/5/5
The 5/5 split out to we put 5% down, and they do a personal loc for the other 5 at 5.75% interest for 24 months- with interest only monthly payments and a balloon payment at the end.
We are considering this in light of the possibility of the rates being jumped later this year.
Maybe the people you know with no PMI at 95% actually have LPMI (Lender paid mortgage insurance). They may not even realize it. In this case they accepted a higher interest rate in return for the lender paying the PMI. If they keep the mortgage the full length they will usually pay more with the LPMI than paying PMI out of their pockets, but it may save them money if they sell the house after several years.