Should You Use Your 401k to Buy A Home in the Twin Cities?

Is Your 401k  Better Spent on a Home?

Many people look at their 401k and they imagine all the things they could be doing now with that retirement money.  Using use this money for all the mounding credit card debt, school loans or even a home down payment often feels like the answer to life's immediate problems. But is it?

When it comes to home ownership, a 401k loan to help you achieve a 20% down payment could be to your benefit if you can afford to pay back both the loan and the new mortgage because it will help you avoid costly mortgage insurance.  It could also help you with closing costs so that you are not cashing out your entire savings right before you take on the potential hidden expenses of a new home.

In Short, The Math Always Wins.

A younger worker who has made a lot on stock funds in their 401(k) in recent years might want to temporarily tap that money to establish themselves as a homeowner.  Or, some workers closer to retirement might find themselves retirement-plan heavy with their eyes on a retirement home. To buy it, they might have to sell investments and eat a sizeable capital gains tax.

Read More: FINANCES | HOME BUYING TIPS |

PLEASE SEEK APPROPRIATE ACCOUNTING AND LEGAL ADVICE BEFORE MAKING YOUR DECISIONS. Make sure you understand the rules and risks before tapping your retirement savings to pay for a home.


Sources: 
http://www.msn.com/en-us/money/home-loans/should-you-tap-your-401-k-to-buy-a-house/ar-BB6Qmcl
http://www.kiplinger.com/article/real-estate/T010-C001-S001-borrowing-from-a-401-k-to-make-a-down-payment.html

40 by 40: Are you on track?

My attention span is particularly short in this modern day life to too much to do and too little time so I like things to get to the point.  Too much information in one sitting and I retain none of it so if you are like me, you appreciate the CliffsNotes version of things.

So here they are: 40 financial things you must know by 40. 

(And for those who like all the details or want more information on just one or two, scroll to the bottom for the full story.)
May I suggest printing this list and hanging it on the fridge like a to-do list?

1. The three basics of a solid financial foundation.
2. How to create a budget.
3. How much you should be saving.
4. Your net worth.
5. How much you make and how much you spend each month.
6. How to get out of debt.
7. Your credit score.
8. How to pull a free credit report.
9. It can take a long time to save up a down payment.
10. What is a financial emergency and what's not.
11. What your ideal retirement will cost.
12. How much you have saved for retirement.
13. How to manage budget-busting friends.
14. Your own money personality.
15. That, the older you get, the more complex your money life becomes.
16. How your significant other handles money.
17. Where your parents stand financially.
18. The basics of investing.
19. A good tax accountant.
20. Your total compensation package.
21. What a 529 plan is.
22. How to maximize your time.
23. Who your health care proxy is.
24. That it's possible to juggle a couple of money goals at once.
25. That you will never have "enough" money.
26. That you never know the truth about other people's finances.
27. What not to do when you buy a new home.
28. How to find a financial planner you trust.
29. How to dress fabulously on your budget.
30. What "rebalancing" means.
31. Why life insurance is so important.
32. The big cost of your little splurges.
33. A favorite under-$10 dinner.
34. How to negotiate a better salary.
35. What a will is -- and why you need one.
36. How taxes factor into your retirement plan.
37. That cashing out your 401(k) may hurt you.
38. The ins and outs of interest.
39. How your money can affect change.
40. A financial plan.

Abreviated from http://www.learnvest.com/2013/10/40-financial-things-you-should-know-by-40/

You might also like:  FINANCES  |  HOUSEHOLD TIPS

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How Do You Get the LOWEST Mortgage Interest Rate?

What is the  SINGLE BEST WAY to get the LOWEST INTEREST RATES on your MONTHLY MORTGAGE PAYMENT?

Although it may seem obvious,  many people do not know that their credit score will dictate their monthly mortgage payment. The lower the score, the higher the payment.

Bad credit can cost you thousands, if not hundreds of thousands of dollars over the lifetime of your loan. Do not wait until you are trying to get qualified to take care of this vital piece of information, as it may be too late by that time to do anything about it.

Contrary to many beliefs you CAN raise your credit score in as little as 60 days. 

Many lenders have suggestions and programs. CONTACT ME for a list of lenders that may be able to help you get on track!

More Topics That May Interest You:

Search for Homes  |  Get A Mortgage  |  What is Your Home Worth?  |  Home Buying Help  |  Increase Your Appraised Home Value

How To Save Money for Buying a Home

Unfortunately the down payment remains among the greatest obstacles to buying a home, so start planning for it... Along with closing costs, moving expenses, insurance and incidentals. 

The larger down payment remains the industry-underwriting staple. Lenders prefer to loan money to borrowers who share as much of the risk as possible. A larger down payment generally means better interest rates and less (or zero) mortgage insurance. Mortgage insurance is money you'll never get back...

Here are a few ways to save more money, faster.

• Stop impulsive and compulsive spending habits. Skip the fancy drive-thru coffee and use a coffee maker at home. 
• Cancel subscriptions to magazines, the gym (get a friend and a video and do it at home), reduce your cable television channels and cut back on other services you can buy for less.
• Stream movies or grab a Red Box and microwave your popcorn at home or have a game night at home instead of going out every Friday night.
• Bag your lunch, go generic at the supermarket, reduce data gigabytes from 10 to 5 on your smart phone and wait until you have with-fi to Tweet and share.
• Plan to save. You won't know where you can cut costs if you don't know where your money goes. Make a budget to track your income and your expenditures.
• Auto-Save. Transfer that money directly from your paycheck into a savings or other interest bearing account using an automatic program at your bank or credit union.
• Bonus: The more you save, the more options you'll have to diversify savings into investments for a better return on your money.
• Dump credit accounts. Stop the "emergencies only credit card" nonsense. If you are saving money, there's your emergency fund. Any kind of credit allows you to spend more than you have and then pay through the nose for high credit card interest rates.
• Liquidate valuable hobby assets. What's more important? Buying a home or hockey gear? Something's got to give.
• De-clutter your garage, attic and closets. Gain a little cash plus when you move, you'll have less stuff to move and a smaller mortgage to boot.
• Get a(nother) job. A second job, maybe even a third. Finding additional sources of income can really help speed up that home buy.   Seasonal work, a home-based business, working half a night shift. If you're working you're not as likely to be spending. 
• Stop loaning money to the federal government. A tax rebate is nothing more than a loan to Uncle Sam, until tax return filing time, but you get zero interest. Adjust your W-4 to match your true tax liability and save the difference.

See Also: Home Buying Tips  |  Homes for Sale  

What is more important? Credit Score or Down Payment?

So, is your credit score more important or the size of your down payment when it comes to getting a mortgage on a house?  

Let's take a look. You down payment determines your Loan to Value ratio.  Your LTV and credit score are primary factors in determining your mortgage qualification and the rate your will receive.

To demonstrate how Loan To Value and credit score impact APR, consider these three buyer profile scenarios.

• Jenny has managed to save up a sizable down payment of 30% on her dream home, but she has always paid for everything in cash and has no credit history so her credit score is only 635.  
• Amy has a good credit score at 745, but she only has enough for a 5% down payment.  
• John also has a credit score of 745 but has saved enough to put 20% down. 

Despite their very different profiles, Jenny and Amy would get nearly the same APR (4.98%) on their mortgage, indicating they pose equal risk to the mortgage underwriters. John, however, would get the best rate, nearly 60 basis points lower at 4.41%.
Assuming they have all have $1,000 per month for their monthly mortgage payment, Jenny would be able afford a house of $265,000; John a house of $250,000; and Amy a house of $195,000.

Want to see what your specific situation qualifies for? Contact Paul Johnston today!

Already qualified and ready to buy?  I'm here for ya' as always!

New Program for Home Buyers with Checkered Credit

 Commonly, people who people who experienced a “Negative Credit Event” like a short sale, foreclosure or bankruptcy would have experienced an extended delay of anywhere between two and seven years before they could purchase a home. But now there is a new program called “The Back to Work Extenuating Circumstances Program,” that is designed to allow these people that were impacted during the housing crisis to purchase a home!  Through this program, they have an opportunity to qualify to buy within as little as 12 months. The program is going to remain in effect for any applications that have a case number through September of 2016.


Getting back to the “Back to Work Extenuating Circumstances Program,” what are the standards that would allow someone to qualify for it?

In order to be eligible for this program, applicants are going to need to prove four things.

1. First, they need to prove that they’re income declined by 20 percent or more for a six month period and that those circumstances were the result of a negative credit event.
2. Second, they’ll need to be able to provide documentation if the negative credit event qualifies under the “Job lost beyond applicant’s control” category. This might include publicly available information on a reduction in workforce or that a company closed. Applicants can also look to see if they had unemployment compensation.
3. Next, they have to prove that, over the course of the last twelve months, they haven’t had any credit hiccups like a late installment or any new collections or judgments. They also have to have a clean credit record for the last 12 months. So, they’ll need to show that they have had a positive rental history or that if they’re living with their parents they haven’t had any other credit issues.
4. The last criteria is that applicants will have to go through Housing Counseling with an approved counselor no later than six months from the application date and no sooner than 30 days from the application date.

Here is the August 15th, 2013 letter from U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT:  http://portal.hud.gov/hudportal/documents/huddoc?id=13-26ml.pdf

Want to find out if you qualify?  Contact Curt Smith! http://www.curt-smith.com/

How are my property taxes calculated?

by +Sarah Marrinan - Keller Williams Premier Realty 

Just wanted to give Washington county in MN kudos for providing a great online document with an example that lays out the tax calculation step by step. Totally cool for those that like an explanation of these things!

Tax rates vary depending on the City/Town, School District, and Watershed District that
the property is located in. See here: http://www.co.washington.mn.us/DocumentCenter/View/3237

Then check the "How to Calculate a Property Tax" example out here:
http://www.co.washington.mn.us/DocumentCenter/View/3239

Don't want to do that math? No worries!  They have a calculator! http://www.co.washington.mn.us/index.aspx?NID=1139

Happy geeking out on this one! :)

Homeowners Insurance

Homeowner's insurance exists because a home is a huge investment, often one of the largest purchases many people make in their lifetimes. Naturally, people want to protect the value of their precious property. Homeowners insurance is a contract between a homeowner and an insurance company. As long as the owner pays the required premiums and meets the other policy requirements, the insurance company guarantees to reimburse the owner for any losses incurred due to natural disasters or human-caused damage.

What Does It Cover?
A basic homeowner’s insurance policy protects the owner against any property damage that results from things like fire, lightning, wind or hail storms. It will also provide for motel and food costs if you are forced to leave your home while such damages are repaired.
A typical policy, however, does not cover flood or earthquake damage. Because these issues are usually specific to certain regions of the country and can cause extreme damage, these can be purchased as separate policies. If you live in a flood zone or near an earthquake fault line you may be required by your mortgage company to carry these protections.
A basic policy will also cover homeowners against loss from theft or vandalism as well as reimbursement for personal property destroyed in natural disasters. It will also provide for something that many people may not normally associate with home protection – liability coverage for lawsuits brought against the owner by people who were injured on the property. This includes the cost of legal defense up to the allowed policy limit. Additionally, most policies will have a provision that will cover the basic medical expenses for the parties.

Is It Required?
Homeowners insurance is almost universally required by mortgage companies with the purchase of a home. This is because the investment is almost as big for them as it is for you. They want to make sure the property is protected from major damages so that if you are ever unable to keep up with your payments, the lender can then reclaim ownership and be able to sell it fairly easily. And even if you own your home outright, a good insurance policy is still the best way to protect the value of your home in the face of the unexpected.

Is homeowner's insurance required?, What does homeowner's insurance cover?, What is Homeowner's insurance?

Will a mortgage break my bank?

How much can you spend on a house?

As of 2010, lenders, do not want your mortgage payment to exceed 28 percent of your gross monthly income. The lender takes into account the actual mortgage payment, interest on the payment, property taxes and your homeowner's insurance. The total of these factors should never exceed 28% of your pretax (gross) income each month.
To calculate what your maximum monthly mortgage payment allowed by the lender will likely be, multiply your yearly salary by 0.28, then divide that number by 12.

But how much is that really?

For most people, they need the bottom line. Do you have credit cards? Car payments? Medical expenses? When it comes down to shelling out the cash, all these items do not come out of your GROSS income, they come out of your NET income. That being said, you should know your net income. Let's say you and your spouse make a combined income of $75,000 (after deductions). You are likely in the 25% bracket for federal taxes if filing jointly. So you owe about $11,000 in federal tax. (Your income is now $64,000.) And in MN, you will owe approximately another $11,000 in state taxes. (Your income is not $53,000.) So using the mortgage calculation above, ($75000x.28=$21,000/12=$1750 per month), your "maximum mortgage payment" would be about 40% of your income after tax.

Do you have other expenses each month?  Of course!  So how do you know what will be a comfortable mortgage payment for you? Break out the Excel spreadsheet. It's time to figure out your budget!  Some people just cringed and thought "Forget that" but don't move on just yet.  What are you currently paying in rent?  Is it comfortable? Then just use that as the base in your head and contact a lender to help you work the numbers to find a mortgage what you can afford for that payment. :)

(Disclaimer: Not everyone qualifies for a mortgage.)
Need answers to your mortgage questions?  Click here: http://www.curt-smith.com/

Simplify Your Life

Just a few random things to make your days easier and your soul happier...

The rules of "storing things" should be as follows.

Clothes, if you haven't worn it in over a year or it doesn't fit, donate it. (Exceptions: if you were pregnant in the last year you can keep it 2 years, specialty clothes such as a suit or simple black dress that fits or sentimental pieces like your wedding dress)

If it's hobby related, are you still interested in that hobby? If you are not longing to do it, get rid of the supplies.

The Junk Drawer: Organize it with store-bought compartments or an old silverware tray and always put things back in their slot. Once per year, ditch stuff. Super Glue doesn't last forever folks.

Prepare for the next day the night before no matter how tired you are in the evening.

Every time you reach for your wallet to make a purchase, ask yourself:

Why am I buying this?

How often will I use this?

If I don't have this what will happen? (Can I live without this?)

Is this replacing something I already own? Will spending this money cause guilt or turmoil I could avoid?


Too much stuff doesn't make you happier! Be grateful for what you have and find ways to be happy living with what you have. It's much easier said than done.

For some people letting go of things that relate to memories is nearly impossible.

Its emotional and just the thought of letting go causes aching in their heart. I can't give any professional advice but I can remind you that you can't let things control your memories. Live your life and keep making new memories!

What is the difference between the Dow and the Nasdaq?

Both the Dow and the Nasdaq refer to an index, or an average of a bunch of numbers derived from the price movements of certain stocks. The DJIA (Dow Jones Industrial Average) tracks the performance of 30 different companies that are considered major players in their industries. The Nasdaq Composite, on the other hand, tracks approximately 4,000 stocks, all of which are traded on the Nasdaq exchange. The DJIA is composed mainly of companies found on the NYSE, with only a couple of Nasdaq-listed stocks. (Source: http://www.investopedia.com/ask/answers/03/072403.asp)


OK - Sow now you want to know more about the stock market and trading? Check out the post- Beginner in the Stock Market for more!

If there is anything I would do differently in my life, it is that I would study business more. I'm trying to teach my daughter Chloe at an early age about investing and money so she's not afraid of it. -Donna Mills

Improving Your Credit Score

These suggestions work best if you have poor or mediocre scores to begin with (under 700).

1) Not everything that's reported in your files matters to your scores but here is the stuff that's usually worth the effort of correcting with the bureaus:
a. Late payments, charge-offs, collections or other negative items that aren't yours.
b. Credit limits reported as lower than they actually are.
c. Accounts listed as "settled," "paid derogatory," "paid charge-off" or anything other than "current" or "paid as agreed" if you paid on time and in full.
d. Accounts that are still listed as unpaid that were included in a bankruptcy.
e. Negative items older than seven years (10 in the case of bankruptcy) that should have automatically fallen off your reports.
2) Pay down your credit cards. Keep you balances below 30% of your total limit.
3) Use your cards lightly. Again – don’t rack up more than 30% each month – even if you pay it off.
4) Pay off your credit card bills and then wait a full billing cycle before charging any more purchases on the card. FICO likes to see that you're still using credit, but doing so responsibly.
5) Your scores might be artificially depressed if your lender is showing a lower credit limit than you've actually got
6) The older your credit history, the better but if you stop using your oldest cards, the issuers may stop updating those accounts at the credit bureaus. The accounts will still appear, but they won't be given as much weight in the credit-scoring formula as your active accounts.
7) If you've been a good customer, a lender might agree to simply erase that one late payment from your credit history. (You usually have to make the request in writing.) Also, ask that your accounts be "re-aged" if your recent credit history is good but you had rough times in the distant past.
8) Dispute old negative credit records. The older and smaller the amount, the less likely the collection will bother to verify it.
9) Closing an account can't help your scores, and may hurt them. If your goal is boosting your scores, leave these alone.
10) If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor. This won't improve your credit score immediately, but if you can begin to manage your credit and pay on time, your score will get better over time.

DO NOT:
1) Ask any creditor to lower your credit limits.
2) Make a late payment under any circumstances.
3) Consolidate your accounts because it's better to have smaller balances on a few cards than a big balance on one especially if it means closing accounts with poor history.
4) Apply for new credit if you have enough.
5) Open multiple lines of credit quickly in effort to establish credit history.
6) Consolidate credit cards
7) File Bankruptcy
8) Foreclosure/Default
9) Allow excessive credit checks

How your score is broken down:
• Payment history: 35 percent
• How much you owe: 30 percent
• Length of credit history: 15 percent
• New credit: 10 percent
• Types of credit: 10 percent

From Fair Isaac’s Website: “As the provider of the FICO® score, the industry-standard measure of consumer credit risk, we believe every consumer should know how to practice good credit management. As part of our commitment to consumer empowerment, we provide free information on how FICO® scores work at www.myfico.com. We partner with banks and such organizations as the Federal Citizens Info Center and the Consumer Federation of America to help people understand how credit scoring works. And we have created programs that our banking clients can use to provide FICO® scores free to their customers on their monthly statements.”

“I never worry about action, but only about inaction”

- Winston Churchill

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