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4 Myths About Using an IRA to Buy an Investment Property


Buying a single-family investment property is an effective way toward long-term profits, but some assume this type of investment is only for the big Wall Street firms or those who have a lot of cash on hand. However, leveraging funds in an Individual Retirement Account (IRA) can put purchasing an investment property within reach for many investors. Tinley Park, Ill.-based MACK Investments, which owns and manages nearly 1,500 single-family rental properties in the Chicago area, debunks the myths about buying an investment property through an IRA, and explains the truth about how it is actually one the most effective ways to boost retirement income.

Myth #1: It’s not legal

Leveraging an IRA to purchase an investment property is legal in all 50 states. However, many IRA investors do not have enough cash in their accounts to make a full purchase, so purchasing an investment property through an IRA is achieved through a non-recourse loan, not a traditional mortgage. Simply put, a non-recourse loan means that, in the case of a default, the bank can only be compensated by repossessing the property, and may not pursue any funds from the IRA account or the investor’s other assets.

“Because the single-family rental market has exploded over the past couple of years, more banks are recognizing the earnings potential and providing non-recourse loans,” said John Gutman, vice president of Sales & Acquisitions at MACK Investments. The firm delivers turn-key single-family investment properties, providing a fully redeveloped, tenanted and managed property. MACK Investments partners with Bridge Capital, a regional financing provider for single-family rental properties, which has provided non-recourse mortgage loans on more than 350 properties since 2010. “When an investor selects a MACK Investments property for purchase, and needs to borrow a portion of the purchase price, we can refer them to a trusted provider like Bridge to explore non-recourse loan options. For us, it’s rewarding to be able to explain this option, because for some investors, leveraging their IRA allows them to invest in a long-term asset that otherwise may have been unattainable.”

Non-recourse loans are required because the purpose of the investment property is to earn long-term income and, therefore, only allows the purchase of revenue-generating real estate. Property types that do not qualify for a non-recourse loan include vacation homes, business properties, or homes rented out to family members.

A custodial account must be established to manage ownership of the investment property through a third-party custodian. “Most lenders have relationships with a number of custodians that the investor can choose from, or they can opt to select their own custodian,” said Gutman.

Myth #2: It’s too complicated for the average investor

Purchasing and owning an investment property through an IRA is actually quite simple. All rental income will be deposited into the IRA account and all payments will come out of the account. “Once purchased, the mortgage, taxes and other expenses on the home will come from the IRA,” said Gutman. “But the profits are also going back into the IRA, making it a self-sufficient way to save for retirement without impact on the investor’s other finances.”

To establish a custodial account, money is transferred from the IRA through the help of a custodian. Investors can typically borrow up to 50 percent of the property’s value, and the account owner does not have to personally qualify for a loan since the property being purchase is evaluated to make the loan.

When using IRA funds to purchase an investment property, the investor is required to engage third-party providers for any repairs or modifications to the home. “Buying a turn-key property through a provider like MACK Investments, which delivers a fully redeveloped, tenanted and managed property, meets that requirement while lessening the burden on the investor.”

Myth #3: It will end up lowering your retirement savings

“It may seem counter-intuitive in some ways, but using an IRA to buy an investment property not only provides the means to purchase the home, but the money earned on the property, like monthly rent, will grow tax-deferred within the IRA,” said Gutman. After the initial withdrawal of funds to purchase the home, income such as rent can be immediately deposited back into the account. “Considering the value of the asset after purchase, it is a significant increase to the retirement account.”

Gutman added, “It’s common to believe that you shouldn’t touch your retirement funds, but it pays off when you use it to buy an appreciating asset like this. An IRA account isn’t about earning money today, its focus is on long-term earnings 10, 20, 30 years down the road. Real estate fits perfectly into that investment philosophy.”

MACK Investments has delivered thousands of single-family turn-key investment properties to investors over the past 17 years, and provides a one-year guarantee on rental income. “Our guarantee is unmatched in the industry. Our investors typically enjoy a leveraged return of 20 percent or more in the first year,” said Gutman.

Myth #4: Your retirement savings will be put at risk

According to Gutman, many investors are encouraged by the fact that, since it’s managed through a non-recourse loan, there is no risk to their other assets in the event of a default. “Bridge Capital is one of very few banks specializing in this space, as many banks don’t want the risk associated with a non-recourse loan. However, understanding the opportunities these types of investments provide to average investors, Bridge has committed to making this option available,” he said.

“Leveraging an IRA to buy an investment property is drawing more and more investors, particularly as the demand for rental properties remains strong,” said Gutman. “This option provides a unique opportunity to leverage existing retirement funds, while growing them at the same time.”

To learn more about how to leverage an IRA to buy real estate, please contact a lending, tax or financial planning professional. For information on single-family investment property opportunities, please contact MACK Investments at (888) 449-0632.

About MACK Investments

MACK Investments, a division of MACK Companies, is a premier provider of turn-key residential real estate investments for individual and institutional clients across the globe. MACK Companies is a redevelopment firm offering investment, construction, residential, commercial, landscape and brokerage services. Founded in 1998 by Chicago-native father-and-son duo James and Jim McClelland, MACK Companies was built out of a shared passion for real estate. Today, MACK Companies is one of the largest providers of turn-key real estate with a portfolio of more than 1,500 properties in the Chicago area. Leveraging a team of professionals in various disciplines, MACK Companies is able to function at the highest levels of expertise in all specialized sectors of real estate.


FinanceReal EstateIRA Contact:

For MACK Investments

Julie Liedtke, (312) 267-4521 […]

Venture West Funding Arranges $5.4 Million Loan on Midland, TX Apartment Building


Venture West Funding, Inc., a mortgage company headquartered in El Segundo, CA announced it has arranged a $5.4 million loan for the refinance take-out of a $4.5 million construction loan on the Westwood Villas apartment building located at 4100 W. Illinois Avenue in Midland, TX. Construction of the 52-unit apartment complex was completed in 2014. The property is managed by Capstone Real Estate Services, Inc. one of the top third-party managers in the United States. The borrower is an experienced real estate investor who also owns the adjacent Westwood Village Shopping Center.

Matt Douglas and Jean-Marc Herrouin of Venture West Funding arranged the financing through Berkadia Commercial Mortgage, LLC to Freddie Mac. The non-recourse loan is at a very competitive 10-year fixed rate and provided the borrower significant cash-out. According to Mr. Douglas, “Together with Berkadia Commercial Mortgage, LLC we were able to fulfill the borrower’s unique objectives by providing advantageous loan terms at a very competitive rate. This refinance allowed the borrower to replace the construction loan with permanent debt while maintaining profitable cash flow. The Venture West team worked closely with the borrower and lender to ensure a successful loan closing.

Venture West Funding was founded more than 18 years ago and has placed more than $8 billion in loan originations since 2001. Venture West Funding is one of the largest firms of its kind operating throughout Southern California, and specializes in providing mortgage loans secured by apartment buildings, commercial properties and single-family homes to a wide variety of borrowers. Venture West Funding is headquartered at 2301 Rosecrans Avenue, Suite 3170, El Segundo, California 90245 (310.706.4450). The firm also maintains a full-service office in Orange County at 31371 Rancho Viejo Road, Suite 101, San Juan Capistrano, California 92675 (949.218.4002).

Venture CapitalLoansconstruction loan Contact:

Venture West Funding

Matt Douglas, 310-706-4462


Jean-Marc Herrouin, 310-706-4456


Tom Santley, 626-441-1445 […]

Apollo Commercial Real Estate Finance, Inc. Closes $50 Million First Mortgage Loan


Apollo Commercial Real Estate Finance, Inc. (the “Company” or “ARI”) (ARI) today announced the Company closed a $50 million participating first mortgage loan secured by a portfolio of 24 condominiums located in New York City and Maui, Hawaii owned by a luxury destination club. Earlier in the year, ARI provided a $210 million first mortgage loan to the same borrower, secured by an additional portfolio of single-family and condominium destination homes located throughout North America, Central America, England and the Caribbean. With the closing of this transaction, ARI has committed to invest over $1 billion of equity into $1.4 billion of transactions year-to-date.

The fixed-rate, participating first mortgage loan has a five-year term with two one-year extension options and an appraised loan-to-value of 75%. The first mortgage loan was underwritten to generate an internal rate of return (“IRR”)(1) of approximately 8% on an unlevered basis. ARI anticipates financing the loan, and on a levered basis, the loan was underwritten to generate an IRR of approximately 15%.

Loan Repayments

In November, ARI received a $28 million principal repayment and $6 million of deferred interest from a mezzanine loan secured by a hotel in New York City.

About Apollo Commercial Real Estate Finance, Inc.

Apollo Commercial Real Estate Finance, Inc. (ARI) is a real estate investment trust that primarily originates, invests in, acquires and manages performing commercial first mortgage loans, subordinate financings, commercial mortgage-backed securities and other commercial real estate-related debt investments. The Company is externally managed and advised by ACREFI Management, LLC, a Delaware limited liability company and an indirect subsidiary of Apollo Global Management, LLC, a leading global alternative investment manager with approximately $164 billion of assets under management at September 30, 2014.

(1) The underwritten IRR for the investments listed in this press release reflect the returns underwritten by ACREFI Management, LLC, the Company’s external manager (the “Manager”), calculated on a weighted average basis assuming no dispositions, early prepayments or defaults. With respect to certain loans, the underwritten IRR calculation assumes certain estimates with respect to the timing and magnitude of future fundings for the remaining commitments and associated loan repayments, and assumes no defaults. IRR is the annualized effective compounded return rate that accounts for the time-value of money and represents the rate of return on an investment over a holding period expressed as a percentage of the investment. It is the discount rate that makes the net present value of all cash outflows (the costs of investment) equal to the net present value of cash inflows (returns on investment). It is derived from the negative and positive cash flows resulting from or produced by each transaction (or for a transaction involving more than one investment, cash flows resulting from or produced by each of the investments), whether positive, such as investment returns, or negative, such as transaction expenses or other costs of investment, taking into account the dates on which such cash flows occurred or are expected to occur, and compounding interest accordingly. There can be no assurance that the actual IRRs will equal the underwritten IRRs shown in this press release. See “Item 1A—Risk Factors—The Company may not achieve its underwritten internal rate of return on its investments which may lead to future returns that may be significantly lower than anticipated” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of some of the factors that could adversely impact the returns received by the Company from the investments shown in the press release over time.

Forward-Looking Statements

Certain statements contained in this press release constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are intended to be covered by the safe harbor provided by the same. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company’s control. These forward-looking statements include information about possible or assumed future results of the Company’s business, financial condition, liquidity, results of operations, plans and objectives. When used in this release, the words believe, expect, anticipate, estimate, plan, continue, intend, should, may or similar expressions, are intended to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; the Company’s ability to deploy the proceeds of its capital raises or acquire its target assets; and risks associated with investing in real estate assets, including changes in business conditions and the general economy. For a further list and description of such risks and uncertainties, see the reports filed by the Company with the Securities and Exchange Commission. The forward-looking statements, and other risks, uncertainties and factors are based on the Company’s beliefs, assumptions and expectations of its future performance, taking into account all information currently available to the Company. Forward-looking statements are not predictions of future events. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

FinanceInvestment & Company Informationmortgage loan Contact: Apollo Commercial Real Estate Finance, Inc.
Hilary Ginsberg, 212-822-0767
Investor Relations […]

Banks get generous to hook clients


Advisers warn mortgage deals offering electronics, cash, furniture may cost people more in long run

Banks are offering cash, TVs and furniture vouchers to entice customers into taking out home loan. Photo / Thinkstock

Banks are offering cash, TVs and furniture vouchers to entice customers into taking out home loans – but experts warn consumers not to be taken in, or it could cost them tens of thousands of dollars.

ASB is offering potential customers a Sony 48-inch TV and PlayStation 4 with new loans of $250,000 or more, while Kiwibank recently offered $2000 cash or a $2500 Freedom Furniture gift card for those willing to transfer their everyday banking and loan to the bank.

ANZ is offering between $1500 and $2000 cash, depending on the loan amount, while Westpac is offering a “healthy cash bonus” with loans worked out with customers “on a case-by-case basis”.

But Karen Tatterson of the Professional Advisers Association said consumers should be wary because there was “no such thing as a free lunch”.

Some people could be tempted by gimmicks and inadvertently sign away tens of thousands of dollars refinancing their loan for a bit of extra cash, she said.

“You have to be very careful your loan isn’t going back to a term that’s longer than you’ve currently got. Banks always write a loan over 30 years, so if you refinance to another bank and you’re 22 years into your home loan, make sure you keep it at the current loan term.

“If you go from a 22 to a 30-year term it could add $20,000 or $30,000 interest to the cost of your loan.”

David Chaston of finance website said the value of loan incentives depended on how they were used.

“If you’re able to negotiate a good deal with the bank, ignoring the incentive, and then you add the incentive as a bonus you have a very good deal,” he said.

“And you have an even better deal if you can use the cash incentives to pay down your loan.”

Real Estate Institute head Helen O’Sullivan said an increase in marketing activity from banks usually coincided with the spring property uplift, but also warned consumers to be wary of temptation.

“You’ve got to weigh up the value of it with the overall package that is being offered …

“Don’t get blinded to the downside of the financial cost of something because of the excitement of getting a new PlayStation.”

ASB’s head of home lending and small business Vince Clark said the bank’s spring package was in reaction to it being a typically busier season for house sales activity.

Kiwibank spokesman Bruce Thompson said its promotion was designed to keep the bank on mortgage shoppers’ radars.

“It’s a very competitive market and Kiwibank has never taken the approach of sitting back and waiting for the phone to ring.”

ANZ head of mortgages Sarah Berry said the bank had offered cash with home lending since 2012 and the home loan market in New Zealand was very competitive.

Westpac said every customer’s situation was different and the bank worked with them on a case-by-case basis to ensure they have the right solution for their circumstances.

NZ Herald


What to Ask Before Stealing From Your 401(k)

Everybody knows it’s a sin to raid your 401(k).

Or so people say.

The truth is, sometimes it can be an option if you’re short on cash and faced with, say, big medical or tuition bills, threat of foreclosure or other pressing need. Most company plans do permit loans and hardship withdrawals from 401(k)s, though the rules can be complicated and vary from plan to plan.

Most advisers will say if you have other assets, use them first.

“Withdrawal from a 401(k) should be a last resort,” says Joe Ready, executive vice president at Wells Fargo Bank and head of its 401(k) division. “There are pretty big repercussions.”

But done smartly, with an eye to avoiding the tax penalties if possible and minimizing the damage to the account’s long-term earning potential, your 401(k) can be a lifeline.

Gone are the days when it was considered taboo, or even unusual, to consider touching one’s 401(k) before retirement. About 18% of 401(k) plan participants had loans outstanding in this year’s first quarter, according to the Investment Company Institute, the mutual-fund trade group. Some 1.7% of participants took a hardship withdrawal last year, a percentage that has held steady for several years.

Here are five questions to ask yourself before deciding whether—or how—to start raiding your 401(k).

1. What’s the tax hit on a 401(k) loan compared with a withdrawal?
On the surface, there’s no contest. Any withdrawal from a 401(k) is subject to income tax, and if you’re younger than 59½ when you do it, you can usually count on paying an additional 10% tax on the amount withdrawn.

By contrast, a loan isn’t taxable and the interest (paid back to your account) is low compared with most other borrowing—usually one percentage point, sometimes two, over the prime rate, which is now 3.25%. Employees have used such loans to help with down payments on their first house.

View gallery


You often can apply for a loan from your 401(k) online, there are no credit checks, and it doesn’t appear on your credit report. The maximum loan you can take is usually $50,000 or 50% of the vested balance in the account, whichever is smaller. You pay yourself back with deductions from your paycheck, generally over a period of five years.

Thus, loans appear to have all of the advantages over a withdrawal. In fact, many plans require you to take out a loan first, before the plan will permit a hardship withdrawal.

But it isn’t so simple. For one thing, loans aren’t available in every plan. Some companies now permit only one loan from your 401(k) at a time. That is a change from the past, when the availability of loans was considered a way to maximize participation in a 401(k) and many plans allowed as many as five loans. Now many companies automatically enroll employees, and fewer loans means they can avoid some of the administrative costs involved.

And even if a loan is available, the other questions make the decision a bit more complicated.

2. If I choose a withdrawal, can I avoid some of the tax penalties?
If you’re considering a withdrawal, there are ways to avoid the 10% tax, but not for everyone.

For example, there is no tax penalty if you are 55 or older and have left the employer sponsoring the plan, voluntarily or otherwise. (The minimum age is 50 for certain public-safety officers.) Military reservists called up to active duty also are usually exempt from the additional tax.

You won’t be assessed a penalty if you become disabled or if the withdrawal is to pay unreimbursed medical expenses that amount to more than 10% of your adjusted gross income, or 7.5% if you are over 65. Withdrawals to satisfy a divorce settlement under a qualified domestic-relations order also would be exempt from the penalty.

If you are no longer working for the company sponsoring the 401(k) plan, it is also possible to avoid the tax penalty by taking a series of substantially equal periodic payments over five years or until you are 59½, whichever is longer, although the calculations are complicated and you may want to consult with a financial professional.

Exceptions to the 10% tax penalty are included in Section 72(t) of the Internal Revenue Code.

View gallery


But not all plans permit withdrawals. Some require documentation and may limit the amount withdrawn to only what’s needed. (For a college-tuition withdrawal, for example, you may have to show that your child is enrolled and what the tuition will be.) The first step is to learn the requirements of your plan.

In many cases, you can take out only what you have put into the plan, not earnings on the investments.

Still, all withdrawals are subject to ordinary income tax, and not all hardship withdrawals are exempt from the 10% penalty. Taking money out of a 401(k) to avoid foreclosure isn’t exempt, for example, nor is a withdrawal to pay for repairs to your home.

Funeral expenses don’t qualify for the penalty exemption, nor does college tuition. If you are able to make a withdrawal for those expenses, expect to pay the additional tax.

For a withdrawal to be penalty-free, you generally should report it on Form 5329 with your federal income-tax return. For more about the IRS rules, go to the IRS website and check out IRS Publication 575. Also on the site, search for “early withdrawals 401k” or “hardship distributions 401k.”

3. Am I feeling solid in my job?
Taking a loan from your 401(k) requires you to have faith in your job security. If you leave your job because you are laid off or even if you just move to another company, the loan balance generally must be repaid within 60 days or it is treated as a distribution, meaning that you may owe income tax plus 10% of the amount withdrawn if you’re younger than 59½.

For many with a loan outstanding who then change jobs, dipping into savings is the only way they can repay the loan balance quickly, unless they cash out of the 401(k) upon leaving, in which case they will owe income tax and may get hit with the tax penalty.

“Typically you can’t pay it back. If you had the money you wouldn’t have taken the loan in the first place,” says Judith Ward, a senior financial planner at T. Rowe Price . “You should be aware of what’s going to happen.”

4. Will I mind my account in a slow lane for six months or more?
You are usually restricted from making contributions to the plan for six months after taking a hardship withdrawal, which further cuts into your retirement assets.

Wells Fargo has an online calculator to estimate costs of a withdrawal, although it doesn’t take into account all individual situations.

One downside of a loan is that the money you borrow won’t be earning what it would have in the 401(k), reducing the power of compounding. That is especially costly in years like 2013 with double-digit returns on stocks. And sometimes borrowers cut back on their 401(k) contributions to offset their loan payments, says Wells Fargo’s Mr. Ready. This is a major source of retirement income, he adds. “Take the minimum possible.”

5. Do I have an IRA alternative?
Those with old 401(k)s, typically from former employers, might consider rolling them over into an IRA, which has looser rules for early withdrawals, says Jean Setzfand, vice president for financial security at AARP.

With an IRA, for example, you wouldn’t be subject to the 10% tax penalty if the withdrawal were to pay college tuition for you, your spouse or your or your spouse’s children or grandchildren.

You also can take penalty-free withdrawals up to $10,000, or $20,000 for a couple, to buy, build or rebuild a first home.

But you can’t roll over a 401(k) sponsored by a current employer. And IRAs don’t offer loans.

Ms. Jasen is a writer in New York. She can be reached at

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Most Orlando luxury estate buyers come with cash in hand


The buyer who purchased Dwight Howard‘s estate in Seminole County last month wasn’t the Orlando market’s only luxury seeker to come with cash in hand.

The NBA star had three cash offers on his lakefront mansion, which sold last month for $3.4 million — $1.5 million less than the asking price.

Of the 20 Metro Orlando homes that sold for $2 million or more during the second quarter, 12 of them, or 60 percent, went for cash, according to a new study by the real estate research firm RealtyTrac. Nationally, 45 percent of buyers in that price range paid cash during the period.

Related Dwight Howard unloads Chateau D’Usse for $3.4 million Get text alerts on your phone! Pictures: Orlando power brokers Photos Pictures: Orlando powerhouse businesses Pictures: Closed for business: Orlando-area retail and restaurant closings Pictures: Notable chains make their way to Orlando See more photos » Topics Orlando Real Estate Homes Real Estate Buyers See more topics »

Regardless of how they are funded, the number of high-end deals has increased in the Orlando market. Reports from the Orlando Regional Realtor Association show that the core Orlando market, which mostly includes Orange and Seminole counties, had 156 sales of $1 million or more from January through July — more than double the rate five years ago during the real-estate downturn.

“The vast percentage of my high-end sales have been cash” for at least the past year, said Nancy Bagby, an associate for Fannie Hillman and Associates of Winter Park. “There are a couple of reasons for this. For one, we’re getting cash offers from people who know they can get a better deal if they don’t have a 30-day contingency on getting financing.”

Pictures: Orlando attractions that have closed

In addition, she said, cash buyers can avoid going through the appraisal process. Appraisers have come under fire from real-estate agents for various reasons — including being too conservative and being unfamiliar with neighborhood values, according to a 2013 survey of agents by the National Association of Realtors.

Anecdotally, real-estate agents say those buyers also “crowd-fund” by getting friends and family to loan them cash so they have a better chance of getting a contract in multiple-offer situations, said Daren Blomquist, vice president of RealtyTrac. After the sale closes, they secure more traditional financing to repay their original lenders.

In markets such as Orlando and Miami, the high proportion of cash sales is also being driven by foreign buyers who are looking for a place to park some of their savings.

“The thing we hear the most from brokers and agents working with foreign investors is that the U.S. real estate market is considered a safe haven and, now that it’s coming off from a downward cycle, they also consider it a value proposition,” Blomquist added.

Wayne Weger, the listing agent on Howard’s house, said prospective buyers for the home on Markham Woods Road were all of Middle Eastern descent. But they weren’t looking for a safe haven for their money as much as they were seeking a place to enjoy their success, he said. Software entrepreneur Nisim Heletz purchased the 11,000-square-foot house.

Just as Orlando had a disproportionately high rate of cash deals in the upper end of the residential market, it also attracted plenty of cash for more affordable housing. For houses and condominiums selling for $100,000 or less, more than 80 percent of the buyers paid cash in Metro Orlando. The rates were 78 percent statewide and 67 percent nationally.

The number of cash deals is declining in Florida, however. In the four-county Orlando region, 52 percent of residential sales during the second quarter were cash — down from 56 percent a year earlier. The rate of cash buying declined similarly throughout the state but increased slightly across the nation. or 407-420-5538407-420-5538


FHA loan could help cash-strapped borrower


View gallery.Dear Dr. Don,I am currently underwater on my condo mortgage. The condo is worth about $163,000 with a mortgage balance of $169,000. In the next year or so, I want to sell this place and buy a new home with my husband. We would need a mortgage to finance the next home. I do have a little extra money each month to pay toward the principal on my current mortgage or to save for a down payment. I have about $500 to $1,000 monthly that I could budget for this. What should I do?We want to be eligible for another mortgage within a year. My husband’s credit is bad, but mine is very good. We’re working to raise his credit score with the hope that his income can be included in mortgage calculations for the new home. We’re looking at homes in the $300,000-$400,000 price range.Thank you,
— Marsie MortgageDear Marsie,
Since you plan to sell the condo before buying your next home, you won’t have the negative equity issue on the condo when you apply for the new mortgage. Whether being underwater in the condo would affect underwriting a mortgage for the new home depends on the lender’s review of your credit history.
View gallery.Of course, you’ll need to pay off the mortgage when you close the sale on the condo. You’ll also need to have money for a down payment on the new home.If you’re low on cash, you won’t have much of a down payment; $6,000 will have to help pay off the condo mortgage.You could get a Federal Housing Administration mortgage including a 3.5 percent down payment. FHA loan underwriting standards are more forgiving of people with low credit scores. FHA loan limits depend on where you live. For 2014, they range from $271,050 in low-cost areas to $625,500 for high-cost areas for one-unit properties. Alaska, Hawaii, Guam and the U.S. Virgin Islands have different FHA loan limits.The FHA mortgage will also have a mortgage insurance premium. Some of this is paid at closing and part is paid monthly. The borrower can finance the upfront mortgage insurance premium into the mortgage.One potential worry is the risk of higher interest rates coupled with rising home prices. While that could help what you get for your condo sale, you’re looking at homes that are twice as expensive as your condo.Since you need both incomes to qualify for the mortgage, you won’t be able to avoid the issue of your husband’s lower credit score. It is a good idea to work together to try to repair his credit.Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

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To ask a question of Dr. Don, go to the “Ask the Experts” page and select one of these topics: “Financing a home,” “Saving and Investing” or “Money.” Read more Dr. Don columns for additional personal finance advice.

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Spring Bloom for Jumbo Lenders

Jumbo-mortgage business continues to be a bright spot for lenders, even as mortgage activity overall slumps.

The total number of mortgage applications from home buyers was down in May compared with a year ago, according to the Mortgage Bankers Association. The drop comes amid rising home prices, an abundance of cash-only buyers and generally tight credit standards, according to the National Association of Realtors. But mortgage activity remained relatively stable for loan amounts at the jumbo level—above $417,000 in most markets and more than $625,500 in some high-price areas.

The top reasons for the health of jumbo lending include lenders’ hunger for wealthy clients, luxury-home buyers cashing in on new jumbo products, and historically low interest rates and credit availability for high-end borrowers, says Guy Cecala, publisher of Inside Mortgage Finance. For the week ending June 13, the average interest rate was 4.29% for the 30-year fixed jumbo loan, according to mortgage-information provider

“There’s more competition, more affordable rates and the most flexible underwriting,” he adds. “Arguably, this is one of the best times in history to be shopping for a jumbo mortgage.”

In May, purchase applications for loans between $417,001 and $625,000 were up 2.5% compared with May 2013, and applications for loans greater than $729,000 saw a 3% drop, according to the MBA. That is compared with year-to-year decreases of 18.8% for loans of $150,000 or under, and 19.4% for loans between $300,001 and $417,000.

Lenders hope home buyers can fill a gap caused by a sharp drop in refinancing. Most eligible borrowers have already refinanced given low rates last year, says Joel Kan, MBA’s director of economic forecasting. “A lot is driven by profitability since lenders are keeping jumbo mortgages on their balance sheets,” he adds. In other words, lenders see jumbo mortgages as a safe investment to hold, versus selling them to mortgage-backed securities.

“We love them,” says John Schleck, mortgage product executive at Bank of America. “The credit quality is fantastic.”

In the first quarter of 2014, jumbos accounted for 38% of Bank of America’s overall mortgage lending, including home purchases and refinances, compared with 23% a year ago. However, that percentage corresponds to a much lower total dollar amount, down from $23.9 billion in originations to just $8.4 billion in that same three-month period a year earlier. That decline can be attributed to the loss of refinance business, according to Bank of America.

Every lender that First Capital Group works with offers a jumbo product, a difference from two years ago, says Mathew Carson, vice president of the San Francisco mortgage-brokerage firm. “Lenders want jumbo borrowers,” he adds. “They see a jumbo mortgage as an entry point to sell them other financial services.”

More factors driving jumbo-loan growth include a housing market rebounding quickly on the upper end and greater consumer confidence among high-income home buyers, Mr. Cecala says. “Higher-end borrowers have recovered faster and stronger than lower-income Americans from the recession,” he adds.

For example, median single-family home prices have soared in a number of markets, especially in California. The median price rose to $679,800 in San Francisco in the first quarter of 2014, a 14.5% increase from the same quarter in 2013, according to the Realtors association.

The average amount on a home-purchase loan application was $276,300 on June 6, the MBA says. That was down slightly from $280,500 for the weeks ending on April 18 and May 9, the highest since the survey started in January 1990.

Here are some issues for jumbo borrowers to consider when applying for a loan:

• Lower down payments: In the competition for jumbo borrowers, some lenders are relaxing the 20% down-payment requirement that was pretty much standard last year. For example, Bank of America introduced an 85% loan-to-value product in the fall, and Navy Federal Credit Union has a 0% down payment portfolio loan.

• More lender and loan choices: In an effort to be competitive with big lenders, small banks and credit unions are rolling out new jumbo loans with aggressive pricing and features, such as adjustable-rate mortgages with longer fixed-rate periods and post-purchase loans where the buyer pays cash up front and then applies for jumbo financing.

• Tight borrower standards: Lender enthusiasm for jumbo mortgages, however, remains tied to strong underwriting standards, Mr. Carson says. Borrowers have got to have a good credit score, ideally in the high 700s, and sufficient reserves and income.

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Bidding wars, cash, heat up Eastside’s real-estate market

Originally published June 13, 2014 at 7:52 PM | Page modified June 14, 2014 at 11:51 PM

Leslie Son receives an alert on her phone every time a house is listed for sale in the Somerset neighborhood in Bellevue.

Son and her husband have lost out on three houses since May in the hillside community with views of Mercer Island and Seattle. Renting now in downtown Bellevue, the couple wants to buy their first home and move in before their 14-year-old son starts the new school year.

Somerset homes sold for an average of almost $1 million in May. The last offer Son and her husband put down was for $985,000 with a 30 percent down payment, and they waived the home inspection. She said they are willing to pay that much for the neighborhood schools and the easy access to interstates 90 and 405 — for her husband’s commute to work at Real Networks in downtown Seattle.

“We thought the house prices would keep going down after the market collapse” in 2008, she said. “But now prices are going back up and we want to get a house before they get any higher.”

When a house hits the market on a Thursday, the open house is on Saturday and dozens of offers are in by Monday, buyers and their agents must move quickly, presenting their “highest and best” offer, said Daria Krukjy, an Eastside broker for Seattle-based Redfin.

Bellevue homes averaged seven days on the market in May, according to Redfin.

When Kirk Neibert and his wife finally found a house in the Woodridge neighborhood of Bellevue that they liked, after actively looking for a month, their agent advised them against making a bid — not competitive.

The house already had multiple offers, and they needed to sell their condo in Texas first.

“It worked out because the house ended up going for $100,000 over listing, and we couldn’t have afforded that,” said Neibert, who is a product manager at T-Mobile with two kids and two dogs.

Brokers on the Eastside say 15 or 20 offers on a house have become typical. Georgia Wall of Re/Max on the Lake said she has not sold a house without a bidding war since February.

What’s driving flurry

Several factors are at play in the red-hot real-estate market:

• Prices are rising. The median price of a home — house or condo — sold on the Eastside last month was $535,000, 7.2 percent more than a year ago, according to the Northwest Multiple Listing Service (NWMLS). The Eastside market hit a median low of $360,000 in February 2012 and has not seen a median price this high since January 2009.

• More houses and condos are sold in April, May and June than any other three-month period of the year, according to the NWMLS, as families time their moves with the school year.

• Mortgage rates have gone up. Wannabe buyers missed the historic low 3.25 percent interest rate on a 30-year loan available last year. But they can lock in somewhere around 4.25 percent now.

• Low inventory. For whatever reason — homeowners may still owe more than their home can fetch, they can’t afford to move up to a bigger house, can’t find a new home or don’t want to move at all — people are hanging on to their homes.

• The Great Recession is over. Has been for years, but the jobless rate for the Seattle metropolitan area dropped to 5 percent in April.

Dozens of offers

Tomas Vetrovsky and his wife offered $650,000 for a Lake Hills one-story house listed for $580,000. The couple paid for a preinspection, as did five other couples on the same day, he said.

After seeing more than 100 brokers’ business cards on the kitchen table at the open house over the weekend, Vetrovsky said he knew the house was popular, but he did not expect to be up against 46 other offers.

Even with an escalation clause up to $715,000 — $135,000 above listing — the Vetrovskys lost the house to a higher, all-cash offer, he said the listing agent told him.

Vetrovsky said he and his wife are emotionally drained by it all.

“We are going to take a break from looking for a couple weeks. Viewing houses takes a lot of time and energy, and time away from the kids,” Vetrovsky said.

In the first three months of this year, 39 percent of Eastside homes sales were all-cash, according to market researcher RealtyTrac.

“Those hurt because you do everything right, but when there are 17 offers and there is cash … there is nothing you can do,” said Michael Link, an Eastside broker with Windermere Real Estate.

Nidhi Doshi and her husband closed on their new Redmond home on May 11 — their 10th wedding anniversary. It was the first house the couple made an offer on, but they did everything they could to set their offer apart from the rest.

The couple offered the $665,000 list price with an escalation clause of up to $700,000.

“Initially we were not comfortable with that … we felt like because we already told them our max that the price would go up to that,” she said. “But we knew they had to show us the matching bid, and they did.”

The seller told her what set them apart was the letter Doshi and her husband wrote, complimenting the sellers on their choice of décor, and describing how they could see themselves living in the home with their two young boys.

“The wife really felt connected to us; she said she was sure she wanted to sell it to us,” Doshi said.

One other tactic the couple used was to allow the sellers to live in the house rent-free for two weeks after closing, while the sellers waited for their new house to become available, Doshi said.

Sometimes, buyers just get lucky.

After multiple home tours, Kevin Jungmeisteris and his wife found a house in the Eaglesmere community of Bellevue listed for $775,000. The couple has a 6-month-old baby and likes the area for its schools and easy commute to their jobs at Groupon in Seattle. They offered the listing price with no preinspection or cover letter, and they got it.

When they met with an inspector on Wednesday, Jungmeisteris said as long as there was no massive structural damage, they would close in early July.

“We were really not in any hurry,” he said about buying their first home. “But it is nice we found a place sooner rather than later.”

Leslie Son, who is looking for a home in Somerset, said she’s now willing to try writing a cover letter with her next offer.

“I wasn’t sure how much difference it would make,” she said. “But now I think I have to try anything I can.”

Coral Garnick: 206-464-2422 or On Twitter @coralgarnick

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