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Don't even know what to call this question...DTI issue maybe?

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Established Contributor

Re: Don't even know what to call this question...DTI issue maybe?

Shellie, I can't help the title of the book, I have used a number of the books in the series myself.  While I have done some dumb things, most people don't think I am a dummy;

 

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I just suggested he get it from the library so it is free. The check may be on the way, but he can re-invest it without the penalties. Let's say the check is $5,000. He will pay $500 in penalties plus a minimum of $1,000 in taxes. So to get $3,500 he will pay an effective interest rate of 42.8% That is if it only takes him a year to get the $5,000 paid back to himself. A payday loan might actually be cheaper. Let's say he is 25 years old. If he just takes that $1,500 and doesn't send it to the government to waste and sticks it in an etf, when he is 65 it will be worth approximately $37,000.  So to get $3,500 he will pay an effective 1,100% interest rate.  If he puts the whole $5,000 to work the number is $123,000.  When you contemplate throwing away $123,000 that should get someones attention.

 

So from the below, it looks like he has 2 car notes?  I am starting to see why the mortgage banker may be a little frustrated.  She's probably having some issues with the big picture getting only bits and pieces of info.

 

I don't mean it to sound negative, but people have to want to be helped.  He came to you, you came here. You get cpa's, mortgage bankers, and other experts willing to help (for free)  if you will furnish all the information. It still is a struggle to get good info from him.  You say he doesn't have anyone in his life for guidance. You're there, we're all here and yet we're still getting dribs and drabs of the picture.

 


@Shellie wrote:

While I really appreciate the help here I do feel that some of these answers are a touch on the negative side in relation to his "interest in getting help" and "home buying for dummies".  I'm sure they aren't meant in malice but they do come off a little on the offensive side.

 

He is a young man with not much other guidance.  He is reaching out for help by asking questions.  He may not be asking the right question or asking the right person but he is reaching out for help.  That's why we all end up here.  He came to me and I came to you all. No one has all these answers until the questions arise.  Those of you who are vastly educated in the process didn't start out there.  You have all educated yourselves by some means.  Be it schooling, going thru the process, self educating, researching your own questions etc.  I ask that you think about this before you pass judgement by making comments implying his lack of knowledge and/or determination. -rant over-

 

Unfortunately, I don't have all the number in this scenario.  I know that both the CareCredit and his store card both had a $0 balance.  He made a small $20 purchase on the store card.  He has already taken the money from his 401k, just waiting on the check to my understanding.  This isn't a constant conversation between the two of us.  If someone has a list of questions they would like me to ask him I would be happy to do so and report back here with the answers.  

 

I know he has other stuff on his credit but in reality isn't stuff he pays.  He carries the note on a car for a friend but that friend pays for it.  I know that doesn't matter on paper tho.  


 

Message 11 of 14
Contributor

Re: Don't even know what to call this question...DTI issue maybe?

I think there is clarification needed on the 401k. Did he take a distribution or a loan against his account? BIG difference...

 

He will only get hit with the 10% penalty if he took a distribution. With a loan he will be paying it back to himself, although it takes those funds out of the compounding of the total account. He will gain a little bit of that back by paying the interest on the loan. BUT it also will be needed to be factored into his DTI...brininging it back in focus for the LO.

 

I would certainly dump the co-signing of the note for his friend. This is factoring into his DTI and if the friend defaults, can ruin his credit FAST. Then he likely wouldn't have to sell his own truck. Tell the friend to have a family member co-sign if he needs to. I would NEVER ask a friend to co-sign on a loan for me...

 

 


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Message 12 of 14
Valued Contributor

Re: Don't even know what to call this question...DTI issue maybe?

I have asked him for additional info.. I will update when I get it.

 

You have to understand that this isn't a running conversation between us.  So it's not that he's withholding information or only giving bits and pieces etc.  He just call and says "they said this or that" and we discuss that.  It's not like he came to me and said "Shellie, I'm going to do this" and laid out all of his info.  

 

I know he is in the process of trying to adopt a baby-due in June.  His big plan was to sell his current house and buy a bigger one, switch jobs (better bring home pay) to be closer to home until the baby gets here and then when the baby finally arrives he planned on finding a day job where he was home every night.

 

As soon as he replies with all additional info I will post it here.  I know this is a DTI issue.  My original issue was the "sell your truck for a month" suggestion.  I see why but that seems like a dumb suggestion to me.  To my knowledge he isn't a co-signer on the friends car, the car is solely in by BIL's name. "friend will buy it from him when he gets his credit to where he can qualify for a loan"  up until now this has not been an issue. 

 

I do genuinely appreciate the help and input.  I am grateful for all the help.  Some times people who know more about a subject can come off making you feel like they think you are stupid.  MOST of the time it is not that persons intention, that why I made the original post addressing that.  Thanks again.

Message 13 of 14
Established Contributor

Re: Don't even know what to call this question...DTI issue maybe?

I assumed it was probably a distribution since he left a long-time job recently.  A loan has to be repaid when you leave a position as well.  Since he has only been on the new job for a short time period I assumed again that he wouldn't have enough in the 401k to get the loan, unless he rolled the old employer to the new employer (which I usually advise against).  Good news about 401k loans is they don't count for mortgage dti calcs.

 


@Glenn_S wrote:

I think there is clarification needed on the 401k. Did he take a distribution or a loan against his account? BIG difference...

 

He will only get hit with the 10% penalty if he took a distribution. With a loan he will be paying it back to himself, although it takes those funds out of the compounding of the total account. He will gain a little bit of that back by paying the interest on the loan. BUT it also will be needed to be factored into his DTI...brininging it back in focus for the LO.

 

I would certainly dump the co-signing of the note for his friend. This is factoring into his DTI and if the friend defaults, can ruin his credit FAST. Then he likely wouldn't have to sell his own truck. Tell the friend to have a family member co-sign if he needs to. I would NEVER ask a friend to co-sign on a loan for me...

 

 


 

Message 14 of 14
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