Hoping to Purchase

[Anonymous]

Here's my situation. I have $12K in cc debt of which I widdle away at every month. My credit score is 767 and my salary is $75K. I have been employed by the same company for 8 years now. I rent in San Francisco and am wanting to purchase a condo in Marin County. I will be borrowing from my 401K for a downpayment. How much house can I realistically look at qualifying for?  Should I consider foreclosures? FHA? How does the Tax Credit work? Since I believe I would qualify for the entire 8K can I use that towards my downpayment thus having to borrow less from my 401K. Or can I borrow enough to cover the downpayment and a) either use the $8K towards my debt b) or put the $8K towards the repayment of my 401K loan? So many options. 

I do have a small regular savings at $2K but I don't really count that.

Any advice would be greatly appreciated.  

[Anonymous]

All i can say is that you get your 8k after closing, and it takes 12-16 weeks to process.  From lenders point of you, if you need that 8k to close, you shouldn't be looking to buy a home. 8K tax credit ends on Nov 30th, 2009.  Some states do provide a bridge loan or 2nd lien kinda thing for DP assistance but Interest rates are high for those programs. So  i wouldnt recommend.

[Anonymous]

Also, I don't think they would like the fact that you are borrowing from your 401k. If you do a straight up withdrawal with no intent to repay then that is a different story. Unfortunately you would have to pay the 10% early withdrawal fee plus taxes. You aren't supposed to borrow money in order to obtain money for a down payment.

[rockymtngrl]

There is nothing wrong with borrowing from a 401k for downpayment or closing costs. It is allowed.

[Anonymous]

You are allowed to borrow from your 401K. I would be paying myself back the money. When you borrow against your 401K there is no penalty. Now if I don't pay the money back and I leave my job then that is another story. I would be taxed and/penalized on that money. I intend on paying back the amount I borrowed for the downpayment within 5 years. 

[XAVIERSMAMA]

Yes borrowing from your 401k is allowed but the loan might be figured into your DTI which could decrease the amount you qualify for.

[Anonymous]

yeah, it affects DTI ratios.

[rockymtngrl]

For FHA, 401k loans are not included in DTI. Here is the guideline:

Collateralized Loans. Funds can be borrowed for the total required investment as long as satisfactory evidence is provided that the funds are fully secured by investment accounts or real property. Such assets may include stocks, bonds, real estate (other than the property being purchased), etc.

In addition, certain types of loans secured against deposited funds, such as signature loans, the cash value of life insurance policies, loans secured by 401(k)s, etc., in which repayment may be obtained through extinguishing the asset; do not require consideration of a repayment for qualifying purposes. However, in such circumstances, the asset securing the loan may not be included as assets to close or otherwise considered as available to the borrower.

[ShanetheMortgageMan]

If you have less than 10% down here in California, and where you are buying is not eligible for USDA and you are not an eligible Vet to get a VA loan, then FHA is usually the recommended program of choice.  FHA requires a 3.5% down payment, and as of I know if there aren't any local housing agencies here who are willing to give you a bridge loan to cover the down payment in the meantime (which is something that is available in several other states).

You can get 100% accurate answers on the tax credit at http://www.irs.gov/newsroom/article/0,,id=187935,00.html, right now the biggest requirement coming up is that you must close on your home by the end of November, and since buying a home typically takes about 30 days, unless you are under a contract to purchase a home or will be shortly, then as of now it wouldn't be likely you'd be closing by that day.

Assuming the minimum required payments on the $12k in credit card debt is $250/mo, you are going with an FHA loan with 3.5% down, then to stick to FHA's preferred debt ratio requirements of 31% for the housing payment & 43% overall, you'd be looking at around a $285,000 house price, which your housing ratio would be at 31.1% & total debt ratio at 35.1%.  Higher debt ratios can qualify if you have compensating factors (good credit scores, liquid reserves available after closing, and more than the required minimum down payment), in your situation since your credit is excellent, as long as you'd have about $5k leftover after you purchase (401k funds can count towards it) you should be able to qualify up to around a $350k sales price or so.