There are so many different ways to go about refinancing a home. The benefits of an Ira, in place without touching the principle come into play with purchasing a home, or purchasing an investment property. One can direct the IRA to be used as the real estate investment.
There could be a HUGE CHANGE on the way for "Baby Boomers"!
With the recent change in Freddie Mac’s rules, it could help retiring baby boomers, and other home buyers with limited incomes but substantial financial assets, qualify for low-rate conventional mortgages.
Freddie Mac, the giant mortgage finance company, actually changed the rule two years ago. But many borrowers and loan underwriters were apparently unaware of it.
You may be wondering "Why would someone near or in retirement want to take on a mortgage?" Well ... the answer is that they may want to refinance an existing loan and take advantages of the new lower rates or they may want to sell and downsize to a smaller property that better suits their needs.
With the housing market improving and low interest rates along with this rather new income eligibility criteria, this may in turn help more people have options where they previously thought there was no hope.
The change allows lenders to take into account a significant portion of a borrower’s financial assets when determining if their income qualifies them for a Freddie Mac mortgage.
For example, under the new guidelines, a portion of assets like individual retirement accounts (I.R.A.’s) and 401(k)s can now count toward a borrower’s income eligibility.
There are a few caveats with one being that the assets must be in a fully vested retirement account recognized by the Internal Revenue Service, and they can’t be subject to a withdrawal penalty and they can't be accounts that area already being used to fund or as collatoral for something else.
Here's how it works ... To determine eligibility, the lender adds up the eligible assets; multiplies the total by 70 percent; and subtracts the funds needed to complete the transaction, like down payments, closing costs and escrows. Then, the remaining amount is divided by 360 months, and counted toward the borrower’s monthly income.
Here's an example to help you to understand it better ... Say you had an I.R.A. worth $100,000 and a down payment of $20,000, leaving $80,000 in assets to be used to determine your income for qualifying purposes. Seventy percent of $80,000 leaves $56,000, which is divided by 360 months, leaving roughly $155 a month added to your income.
These assets are in addition and separate from dividends, interest payments, trust distributions and Social Security payments, which have long been eligible for consideration when calculating a borrower’s qualifying income.
It is potentially a "Big Deal" according to Freddie Mac for many prospective home buyers, including the “rapidly growing” population of retirees and near-retirees who would like to buy or refinance a home.
*Excerpts taken from original article written by Ann Carrns and Published in the New York Times on May 24, 2013