With housing prices and interest rates plummeting faster than interest in watching more Michael Jackson coverage, the savvy investor/home buyer sees a thrilling opportunity that at first glance, may seem just out of reach. As a financial advisor, I work closely with mortgage brokers who are facing a daunting challenge of helping their clients find that pesky 3.5% minimum down payment in order to qualify for an FHA loan. While some exceptional circumstances allow for 100% financing, the days of placing nothing down on our home loans are all but history. It may now be time for us to capitalize on a market strategy for locating the path to the keys to our new home.
Now, the search for a down payment acts as a major caveat clouding the vision of both the homebuyer and the mortgage broker. I have discovered a strategy that assists both to their goal. We know it may be a good time to buy, but our problem is no longer the price or interest rate, it happens to be the ability to come up with the seed money required to get that price or interest rate. And time is of the essence with the new offer of a tax credit for first-time home-buyers!
Enter the Single-K.
With most mutual fund companies offering a product that allows an individual, couple (married or domestic partnership) and their immediate family to start a plan that is essentially an equivalent to a larger company’s 401(k), the Single-K works for those who own a business and it carries a number of distinct benefits. First, the Single-K has a very handsome contribution limit should your business be profitable. But contributions are not the point of this piece. The access to a down payment is. And what if you don’t own a business?
Practically anyone can start a business in this country. Heck, if you love vitamins, skin care or legal insurance, you can start your own network marketing company for around $100. By starting a business, you open yourself up to over 13,000 pages of the US Tax Code that allows you to not only start a plan like the Single-K, you are open to indulge in the tax benefits it provides.
The essential benefit is the loan provision most of these Single-K plans offer. By transferring an old IRA, 401(k), SIMPLE IRA, SEP IRA or even an existing plan from some companies that offer an “In-Service Withdrawal,” you are on your way to accessing the down payment for your new home. Remember, you must own a business that employs no one other than immediate family members and other stipulations may apply. But if you qualify (contact me to determine if you do), the “Loan Provision” could be of great interest to you and your home buying desires. For one particular mutual fund company, Single-K owners are able to borrow up to $50,000 or 50% of the balance of the plan and if used for a primary residence, that payment is amortized over 15 years at a phenomenal rate (like, Prime + 0%). This interest is paid back to your Single-K (so it won’t increase your debt-to-income ratio) and the payments could be quite low, depending on the size of your loan and the Prime interest rate. The annual fee of a said mutual fund company is just $15, the loan fee is a one-time $40 and transaction fees could be as low as 1%!
If you or someone you know is digging deep to find that down payment but doesn’t want to borrow from family or the bank, they may be able to borrow it from themselves.
Contact me for more details.