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I'm looking at a Jumbo mortgage, purchase price of 745k.  I have 50k, can take out 50k from a 401k loan.  Thus, I need either a jumbo loan or conventional + 2nd mortgage.  Credit scores of 800+.  Annual income of 350k+

 

Can anyone recommend whether it is better to get a conventional + 2nd mortgage vs. a jumbo + PMI?  I am thinking I want a 15 year with a low rate, no points, minimal closing costs. 

 

Also, can you please send me lender recommendations?  Bankrate is showing no jumbo mortgages with less than 20% down.  I'm not looking to get gouged with massive origination/broker fees, so please don't send if you are trying to earn a big commission.  (I'm a lawyer, licensed real estate agent, and former mortgage broker).

 

Edit (this is in IL, 60010)

 

Best,

 

Sam

Edited by bernsten69
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19 hours ago, bernsten69 said:

What is the harm in borrowing from a 401k?  I end up paying myself interest back.

lots of reasons, such as those listed here: https://www.investopedia.com/ask/answers/111815/can-401k-be-used-house-down-payment.asp

 

but IMHO the main reasons are that 401ks:

  1. are design to keep you having to live on cat food in old age
  2. are protected assets in case of insolvency

 

and 401k loans:

  1. have an opportunity cost as funds will be out of the market
  2. need to be PIF if you lose your job (and this could trigger tax penalties)

 

for the details you provide, the additional 50k doesn't really get you anything since you will still need a jumbo, still need to waste money on PMI, and the loan will cut into your DTI.

 

With such a high income, what is keeping you from building up a larger down?

 

(hopefully @cv91915 chimes in)

 

 

 

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Another option is to look for a lender who offers loans with lender paid PMI (LPMI).  This is where you have a loan (conventional or jumbo) that you put down less than 20% but the lender pays for the PMI.  You pay for this in the form of a higher rate.  For example, Alliant CU offers these loans.  on a 15 year fixed with 20% down the rate is 2.5% (no points) but for your scenario it is 3.25% (745k purchase, 50k down).   You need to work the math to see what is in your best interest.  In any case, you should get multiple quotes/options.

 

Some on this board have had bad experiences trying to work with CUs on a mortgage.  I did one earlier this year and did not have any issues, however, I was doing new construction so there was no nearly the time pressure there would be on an existing home sale. 

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On 12/12/2020 at 11:47 AM, hegemony said:

lots of reasons, such as those listed here: https://www.investopedia.com/ask/answers/111815/can-401k-be-used-house-down-payment.asp

 

but IMHO the main reasons are that 401ks:

  1. are design to keep you having to live on cat food in old age
  2. are protected assets in case of insolvency

 

and 401k loans:

  1. have an opportunity cost as funds will be out of the market
  2. need to be PIF if you lose your job (and this could trigger tax penalties)

 

for the details you provide, the additional 50k doesn't really get you anything since you will still need a jumbo, still need to waste money on PMI, and the loan will cut into your DTI.

 

With such a high income, what is keeping you from building up a larger down?

 

(hopefully @cv91915 chimes in)

 

 

 

One point of clarity, the bolded section is incorrect.  401(k) loans do not count towards your DTI calculation.

 

Other points are all solid though...think if you had taken a 401(k) loan in March when the market was cratering from COVID...the funds you withdrew would have missed the massive run-up to the current values.  As I said in my other post, you need to do all the math to decide what makes the most sense for you.

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On 12/11/2020 at 1:57 PM, bernsten69 said:

Thus, I need either a jumbo loan or conventional + 2nd mortgage. 

Just getting a jumbo with 20% down is much more challenging than it has been in a long time.

 

Even if you decide to do the 401k loan (I'm not recommending that), putting 100k down still puts your LTV at $645,000/$745,000 = 86.5%.  You're going to struggle finding any lender who's willing to be put in second lien position behind an 86.5% LTV first.

 

When I was HELOC shopping earlier in the year, I couldn't find anyone who would do > 80% combined LTV [(first mortgage balance + total HELOC credit line]/value]. 

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On 12/11/2020 at 4:57 PM, bernsten69 said:

I'm looking at a Jumbo mortgage, purchase price of 745k.  I have 50k, can take out 50k from a 401k loan.  Thus, I need either a jumbo loan or conventional + 2nd mortgage.  Credit scores of 800+.  Annual income of 350k+

 

Can anyone recommend whether it is better to get a conventional + 2nd mortgage vs. a jumbo + PMI?  I am thinking I want a 15 year with a low rate, no points, minimal closing costs. 

 

Also, can you please send me lender recommendations?  Bankrate is showing no jumbo mortgages with less than 20% down.  I'm not looking to get gouged with massive origination/broker fees, so please don't send if you are trying to earn a big commission.  (I'm a lawyer, licensed real estate agent, and former mortgage broker).

 

Some belated feedback (please take it with the proverbial "grain of salt"!

 

Some of this data is inconguous.  Setting aside the cash source, you only have about 6% to put down on your desired home purchase (and, presumably, closing costs), and yet you're suggesting that you can foot the tab on a 15-year mortgage?  That mortgage roughly works out to about $5k/mo, lets add another $500/mo taxes, and $300/mo h/o ins ... say $70k/yr annual housing expense.

 

I gotta ask:  Did you wake up Monday for the first time with the notion that you might want to buy a house?

 

Call this "tough love" and/or a "reality check".  You have to buy on to the fact that for the housing aspiration that you hold, you kinda crapped out on the prep side of things.

 

I'm not really trying to beat you up here ... it's just that if the worst scenario at this time is that it's most prudent to hold out 18-24 months before jumping into a purchase, it's hardly a dire situation.  (And I really think that's a picture that bears much consideration.  Holy hell, you'd be leaving yourself on a very thin cash margin should you find out subsequently that the house unexpectedly presents $50k of hidden ignored upkeep needs ... (ask me how I know!!).

 

From the facts presented, I'd like to assume that you're 26 and have enjoyed a very successful career climb.  There'd be no mystery why you don't have more set aside at this point.  And it would be understandable why you might "lust" after a home for which you have the income to support the debt service/maintenance.   But, when you're going for a jumbo, as others have pointed out, these days it's an uphill climb without 20% down (although I imagine it may still possible to wrap a subordinate loan, as was the case 20 years ago, but it won't be cheap).

 

Under that "26 year old" scenario, I could be supportive of tapping a 401-k for a down payment.  At a similar age, I funded by first home exactly that same way -- with foresight and fairly limited resources, 401-k savings vs saving for a house was pretty much an "either / or" situation.  When a 401-k deposit can get you something like a 50%-100% match with reasonably quick vesting, the scenario comes out top even with the complication of an early withdrawal.

 

If you're nearing your 40's, however, on the compensation you cite (or a healthy fraction thereof prior to this), prudence suggests that you should be saving for both purposes, shorting yourself on the lifestyle front, if necessary.  Beyond age 35, I'm with others here who assert you don't touch 401-k savings, even temporarily  (well, I'll qualify that to say in a pinch, tapping up to 10% and reallocating to effectively draw the loan strictly out of your safest/lowest return segment of your portfolio allocation isn't an abuse of reasonable investment strategy.)

 

On the lender front, I've been putting in a good word for DCU since our December purchase of a new home (in advance of sale of our existing).  With bonus income insufficiently seasoned to count, the combined debt ratio for both mortgages (plus the HELOC taken on the 1st home for down payment), fell just a little shy of 50%.  DCU was extremely helpful and effective in negotiating the HELOC & mortgage qualification process in a reasonable time frame, at strongly competitive rates.

Edited by hdporter
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Thanks all.  I'm going to pass on this property and look to a conventional purchase more in my range in 2021. (I have my eye on something in the $550 range).  I'm not 26, I'm 40 and expect to make equity partner in a few years, which will more than double my income.  My down payment died in the markets earlier this year.  (yes yes, it should have been more conservatively invested, etc.) My wife also spends 1/2 of my damn income, so we can't save anything after taxes.  I need to cut her off.  (the plan was to recover the 5k she is spending every month on garbage, cut up her credit card, and use that to pay for the slightly increased house payment over what we are currently paying)  For a while I had her on a budget and limited her spending, but stupidly stuck her on my CC account.  It's actually closer to 6-7k wasted every month.  That's it.  I'm stopping it tomorrow.

 

In any event, I would prefer not to take out the 401k loan.  Are conventionals with 10% down still available?  Any recommendations?  What are good sites to compare conventional rates with?  They all seem to want my information before quoting their best rates.

 

Should I apply now or wait until 2021?

 

(I'm not falling for the permanent increase in interest rate in lieu of PMI, where you end up paying 10x more than you would have in PMI.  Nice commissions for the brokers who sell you on that scam though!)

 

Thanks!

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6 hours ago, bernsten69 said:

What are good sites to compare conventional rates with? 

 

I generally start with running a scenario through Zillow Mortgage Rates https://www.zillow.com/mortgage-rates/#/location.  I also look at what Aimloan and a couple of other direct lenders offer.

 

6 hours ago, bernsten69 said:

Should I apply now or wait until 2021?

 

If you and your wife have such different philosophies on money I'd hold off making any large purchases / financial decisions until that's resolved (assuming it can be).

 

6 hours ago, bernsten69 said:

(I'm not falling for the permanent increase in interest rate in lieu of PMI, where you end up paying 10x more than you would have in PMI.  Nice commissions for the brokers who sell you on that scam though!)

 

This isn't a scam.  There are mortgage products for people who want to make a move before they really should, and the increased loan costs cover the risk of lending money to someone who has inadequate savings and/or is buying too much house.

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Agree with CV...I think the first thing you need to do is get on the same page with your wife on your finances.  What if you get into this new house with the higher payment on the expectation she slows her spending, but she doesn't.  Now you really have a problem on your hands.

 

Is there a compelling reason to move now rather than in 1-2 years after saving up some more for a down payment, other than we want a newer/bigger/whatever house?  I honestly don't see rates going up anytime soon, but I suppose they could.  I wouldn't recommend rushing into a deal and "settling" for any house that you aren't 100% in love with.  That's  just mean you'll want to do this all over again in 2-3 years and have to eat the cost of selling and buying again.

 

Any loan with <20% down is going to have some sort of PMI attached, or have to be done as a 80-10 or 80-15 with the second being at a 5-6% interest rate (that is where they were towards the end of last year, it may be different now if they are even available).  One way or another you are paying for the fact that you don't have 20% down.  In some cases it makes sense.  I wouldn't call it a scam though. 

 

Since the 401(k) loan doesn't get you to 20%, I see no upside to taking it.

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10 hours ago, bernsten69 said:

Thanks all.  I'm going to pass on this property and look to a conventional purchase more in my range in 2021. (I have my eye on something in the $550 range).  I'm not 26, I'm 40 and expect to make equity partner in a few years, which will more than double my income.

 

I expect it was clear in my comments that I viewed your posture as erring on the aggressive side, so this sounds quite rational to me.   If you keep yourself positioned with adequate liquidity (in one form or another), the financial stresses that unexpectedly, yet inevitably, arise are will be more readily handled and your sanity won't be at risk.

 

For that matter, the added information was exceedingly helpful in grasping your situation.  It's apparent that you generally have your head on straight.  My wife and I are roughly 60 ... we didn't start to truly get on top of our finances until age 40, at which point our income finally started to truly outpace our spending.  I'm not going to suggest, for a minute, that we ever mastered budgeting ... we simply reached a threshold where a certain level of indulgence was sufficient ;)

 

If I were to read our experience into your possible circumstances, then I find it likely that you live a metropolitan lifestyle.  Things like "enjoyable" dining, acquiring household goods, an occasional splurge on upscale travel, etc. end up consuming a higher share of your income than what might otherwise be considered prudent.  (Our dining out budget in the 20 years we lived in Philly, prior to the move to GA 10 years ago, easily might have fed a modest island state ...)

 

I'm not going to offer relationship advice other than to suggest if you guys can really see eye-to-eye on the big things and agree on longer-term goals, the short-term stresses become much more manageable.

 

I leave comments from others to address your questions. 

 

I will note that, in your shoes, if you do finance with 10% down, PMI need not be a dreaded prospect.  Keep in mind that once you reduce the mortgage balance to 80% of your purchase price, you can request PMI be dropped.  In your shoes, I expect you can handle an accelerated mortgage pay down within 2 or 3 years, with that specific objective.  (Your house will need to re-appraise to at least your purchase price.)

 

I'll also suggest that my view of the housing market sees limited appreciation over the next year.  The last year, under COVID-19, has seen supply dry up considerably, pushing a 5%-8% increase in many markets.  Vaccine distribution will hopefully mark a considerable return to "normal" and people will renew "relocation" activities that have largely been on hold, easing the supply constraints.  I don't anticipate a financial penalty by deferring a purchase by a year.

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