topic Re: Made an offer in Mortgage Loans

Made an offer

Anonymous — Fri, 15 Apr 2011 13:32:47 GMT

Hey everyone,

Just have a quick question regarding downpayments. We have made an offer on a house and the broker sent me a copy of the offer made. On it says the amount we offered and what our downpayment will be. Underneath that it says, "Cash at Contract: 5,500". What does this mean? That at the time I sign the contract I have to furnish this amount? The reason I ask is because we are using our 401k as downpayment and they won't even begin to process our withdrawal until we send them a hardship withdrawal form with the signed contract. We don't have enough reserves in the bank to come up with that figure. Is there a grace period for which we can allow our 401k to draw down and then submit the 5,500?

Thanks

Re: Made an offer

cdtotten — Fri, 15 Apr 2011 16:05:12 GMT

Although it varies for each market, when you make an offer on a home and it is accepted, general practice is to make a "good faith deposit" within 24 hours with the broker to be put in escrow. This amount of money varies by area... some places $1,000 is standard, other is more. There is no right or wrong. The deposit is to show the seller you are truly intent on buying the property and not just going to back out immediately.

That being said, I am concerned that your only source of a deposit is coming from a 401(k) hardship withdrawl. That is a terrible place to get the money for a home from. If you truly can't afford to make a good faith deposit out of your pocket, then you shouldn't be buying a home, because you obviously don't have enough money saved up. I'm not trying to be mean at all, but I don't want you to make a HUGE mistake financially.

A hardship withdrawl from a 401(k) plan (unless over 59.5), will result in a 10% penalty on the money AND you will have to pay normal income taxes on the money. Assuming you were in say the 15% tax bracket and you pulled out $5,000:

$5,000 @ 10% penalty = $500 penalty

$5,000 @ 15% taxes = $750 taxes

So that $5,000 you just took out is now only $3,750.

You need to think about this.

Re: Made an offer

Anonymous — Fri, 15 Apr 2011 16:46:41 GMT

Thanks for your reply! I've become aware of all of the pitfalls regarding using your 401k. We also have savings, but all transfers are done electronically and take a few business days as well (ING Direct). I guess my major question was, do I need the money exactly the day I sign the contract or can I have a day or two to transfer funds? I'm just unsure.

Re: Made an offer

cdtotten — Fri, 15 Apr 2011 17:24:48 GMT

You will need to contact your real estate agent. Most require the check within 24 hours of acceptance - some may be a little more flexible. You aren't likely to get more than 48-72 hours though.

Re: Made an offer

Heavanly1 — Fri, 15 Apr 2011 17:30:43 GMT

I believe that depends on the person or bank that you're purchasing the home from.

When I started looking, I was required by my realtor to submit an earnest money deposit of $1000 before they'd even allow me to submit an offer on any homes. When I finally signed the sales contract for the home I wanted to purchase, the seller requested an earnest money deposit of $1500; they allowed me a 3-day "grace period "to return with the additional $500 (since I signed my contract on a Saturday and the banks didn't open until Monday).

Most banks, especially those that don't have brick and mortar locations, will overnight you a cashier's check for a small fee. You may want to utilize this option; the last thing you want to happen is that you lose your dream home over this technicality.

Lastly, in reference to your 401(k) withdrawl; does your company allow you to borrow against your 401(k) instead of taking a hardship withdrawl? My employer allows this and this option avoids the 10% penalty and income taxes that a hardship withdrawl would incur. We're allowed to repay the loan through payroll deductions over the course of 1 to 15 years. Now granted, there are some downsides to that option as well (i.e. you're repaying the loan with after-taxed funds) but at least your 401(k) fund will get back the money back that you withdrew from it (less the additional funds it could have earned). If you must touch that money, I'd definitely look into that option first before taking a straight withdrawl.

Re: Made an offer

Anonymous — Fri, 15 Apr 2011 19:46:41 GMT

Also, if you're doing the loan option, you should find out if you can do more than one -i.e., if you need to borrow closing costs, etc, your 401k program is going to want proof of the amount you need for closing, etc.

Re: Made an offer

Anonymous — Fri, 15 Apr 2011 20:00:11 GMT

Unfortunately my 401k does not allow for loans so I am going to have to think of another way.