Hello and thank you in advance for any and all investment advice you can give...

Scenario: I am 35 / My fiance is 32 - to be married in August. We are both renting now - we both make approx. $66k / year. We both have minimal savings (approx $2 - 3k each). She has $29k in her retirement account. The homes we have been looking at are around $250,000 (we are planning to stay in the house for a very long time - thus need 4 bedrooms). She will work for no more than two and a half years after we are married - we are planning to get pregnant one year after marriage and she will quit work once she is about 5 to 6 months pregnant - thus living off my salary alone after that for an indefinite period.

Option 1: She moves in with me in August (cutting our expenses in half) and we save her salary for a very large downpayment on a house after one year. During that year she and I continue to put 6 to 10 % of our salary amount in retirement. For this short-term investment, either a money-market savings account or a Prime Rate Trust or both seem to be the best options during that year. Then we purchase a $250,000 home - putting approx. $70,000 to $100,000 in a down payment bringing our mortgage considerably lower - thus able to invest more during that next year.

Option 2: we buy a home right away - taking $10k from her retirement (maximum allowed by law I believe) and make the minimum down payment and take advantage of the tax benifits of paying for a home over the years. We continue to save and invest her salary while paying extra on the principal of the mortgage over the years.

Please give opinions on which Option would best suit our financial situation and explain why.

Thank you

It's too hard to say which option best fits your scenario. There are too many other factors to take into consideration.

As a mortgage broker, my advice to you is to invest something that costs you very little but will have the best return: Time.

Meet, in person, with several reputable Mortgage Brokers in your area. Make sure you are looking at "A Paper" brokers and not those who deal soley in subprime. The "A Paper" lenders will have the most options that are realistic for your situation.

Have a recent credit report handy. A report with credit scores run by a bank or a mortgage broker. The reports that you can buy directly from the Credit Bureaus carry little weight when applying for a home loan as the scores are calculated differently. A score for a report requested by a consumer is scored differently from that requested by a lender offering a credit card which is different from the score received by a potential auto financier... And all are different than if your report is run by someone looking to place you in a home loan. These are little known facts that even the credit bureaus don't discuss much.

Look for someone who can speak of the tax implications, who understands the local real estate market, can relate payment options directly to your financial goals (both short term and long term) and has access to atleast half a dozen lenders if not more.

I say stay away from the subprime lenders because anyone can place you in a subprime loan scenario. Whether or not it's the best deal for you based on your current income, debt scenario anr credit scores, noone can tell without looking at those facts. A subprime loan may be the easiest to get into, but I assure you, you probably won't like it.

Feel free to drop me a private message and we can go into options and plans of attack.

Brett

First, I need to comment on the above post. Not everyone will qualify for A-paper loan. If it is necessary, a reputable and ethical broker will try to qualify you in B-D paper loan but will advise you accordingly. The categorization depends on credit score, downpayment, and loan to value ratio. Some subprime lenders will allow you to buyout of the pre-payment penalties, but not all of them will allow that.

It sounds like you have an aggressive savings plan; not many people have a plan to save. Keep it up. If your wife can work and enjoys it, she should continue to work. It is not adviseable to draw from the retirement account.

Don't be discouraged if not everything goes according to plan.

Any idea what your score is approximately?

If you want a free credit report RMCR (Residential Mortgage Credit Report) I would be more than happy to cover it with you. I think getting your credit score now is essential to getting better advice right now.

Bglines I know where you’re coming from with using the banker rather than the broker. I agree to a certain extent because bankers typically are not just hired off the street when they get their license depending on the company (as in banker working for a bank). You have to have a lender that knows of more A or b/c paper options as well. Some bankers are isolated to in-house bank lending only and have limited knowledge of other avenues that may benefit someone. Some do know.

I am a banker myself but I also can broker. It is ideal in my opinion as I deal with my competition bankers on the wholesale side and b/c. Fee's are very low still and no fees from my company on brokered loans! Just 3rd party and my fee.

Bglines is right about the reports. Each report can differ tremendously in some cases.

I agree with Susan on the retirement since you have other liquid assets. It just depends on how much you can put down. Let me expand and tell me what you think Susan. :-)

Opening the soapbox.

Customer A and Customer B we will call them.

Buying a home at 100k Purchase price for sake of easy numbers.

Customer A has 10% down Liquid.
Customer B has 20% down Liquid.

And let's say they have a 620 mid score. Conforming/Alt A type score.

Customer A may not get Conventional Financing. They go with a B/C lender. 2/28 Arm Loan at 7% Or 30 Yr fixed at 8%.
2/28 is a big risk. In today’s economy rates are going up. They will likely refinance after 2 years hence paying potentially more closing costs.

30 Yr Fixed is 8% much higher payment. Probably still refinance soon but rates are going up. Time to get a good rate may run out to better their situation. ***VERY IMPORTANT*** If these people wait they may be subject to much higher rates. Maybe not. Hard to predict but inevitable the way Greenspan keeps raising prime.


Let's say customer a pulls 10% (I am going to have to check on this it is either 10% or 10k like poster says) out of a 401k. Until I clarify let's assume 10% because 10% of 100k is 10k :-)
They now are accepted for a conventional loan at 4.875% fixed on a 30-year term.

The payment difference and security and fee savings of not needing to refinance or pay additional closing cost's "MAY" be far greater than leaving the money in the 401k. This type of 401k draw has no 10% penalty.

Payment at 8% on 90k is 660 Principal and Interest
Payment at 4.875% on 80k is 423.36 Principal and Interest.
Savings is 236.63 per month in which Customer B could re-invest into the 401k in addition to their normal contribution. Not to mention a customer who refinances and pays additional costs. Takes the risk of rates jumping up in the next few years (which is likely to happen)

Or on the flip side you are taking a risk of losing the gain from the investments you have in your 401k.

(As of this week 4.875% is out there I had it for a few days on a purchase) PAR of course. PAR is better for someone long term in my opinion. Yield may be better for short-term ownership. Fewer fees in the front. Maybe 0. Sorry but I tell every borrower because I believe in full disclosure. Yield spread is a way for a broker/banker to get paid. If you qualify for 6% and the broker sells you 6.5% the lender typically pays the broker a premium. It is called yield spread. Also it may not be as bad as you think in some cases because the broker/banker may be able to give a lender credit from that money to help close a loan? Agents... How many times has your lender done this???? I do it and I am proud of it because it helps people! Depends on the situation whether it is a benefit to do so. If someone simply does not have the money to close I try to help. Perfectly legal but certain guidelines to follow in doing so.

I would not be able to predict the potential 401k gain.

Or you could push the savings back in the mortgage towards principal. If you pay 660 per month the loan will pay off in about 14 years. (Important to mention due to your ages) You are still young but in 14 years you may wish for retirement. :-)

Just for the sake of clarification I prepare taxes on the side. Some people misunderstand how the tax deductions work.

Say you make 100k... You pay 12000 in mortgage interest. The deduction drops your taxable income to 88k. You (in a perfect world) pay taxes on 100k all year. You may get a bigger refund because you’re taxed at 88k. But, look it up on a tax chart. Is it a huge savings? Some people for the sake of tax benefits take a higher mortgage rate. In some cases the monthly savings of the lower rate exceed the tax refund.

You take the taxation on 100k and subtract the taxation on 88k = the money you saved due to the mortgage interest.

I feel I should mention it. If you are self employed this may be a benefit!!! (Taking a higher rate)


Now…. I mean the best and I said the word “MAY” a whole lot. It is hard to say what for sure will benefit you the most. But, get us some more info. It will help for sure.

Sorry I had some time to spare.

Soapbox closed.

PS everyone on here is trying to help. Everyone has great Idea’s! Pay attention to other opinions. Mine is not always the best. There are several variables in this post but in this scenario you can hopefully see that it may be a better benefit to take the 401k draw.

It is good to disclose but too much info and detail could discourage a consumer.

Wow that post was long Susan. You actually read it. I do not think I could read it again. lol Thanks Susan!

Would you be interested in our "no money down"
new homes?

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