There is only one thing that blocks the path to your new home: the down payment.
Many homebuyers are now choosing to use their employer’s FHA 203k home loan) program funds as a down payment on a home. Usually, you cannot withdraw money from your FHA 203k home loan unless you retire, leave the company or become incapacitated. But, many business plans allow some “exceptional hardship withdrawals” when there is an immediate and significant financial need, including the purchase of the employee’s principal residence.
The disadvantage to withdrawing from exceptional hardship is that you will have to pay taxes and penalties on the amount withdrawn from your plan, which often must be paid in the same year as the withdrawal. Although withdrawals for exceptional difficulties are permitted by law, your employer is not obliged to offer them as part of your plan. Check with your employer’s Human Resources department if you are unsure if your 203 (K) plan allows for this type of withdrawal.
Another approach may be to borrow on your 203 (K) – often up to almost 50 percent of your account balance. You pay interest on the loan, but interest is returned to your account. The money you receive is not taxable as long as it is repaid and plans can give you a period of between five and 30 years to repay your loan.
There are risks to borrowing from your 203 (K). If you lose your job or leave your employer, you must repay the full loan in a short time, sometimes as little as 60 days. If the money is not refunded within this time, it is considered a withdrawal from your plan and subject to the same taxes and penalties. Although 203 (K) accounts can be transferred tax-free to a new employer’s 202 (K), without penalty, it is not possible to do so with a FHA 203k home loan.
In addition, since funds withdrawn from your account will no longer accrue compound interest, your account will be smaller when you retire. And you’re replacing pre-tax money with after-tax money.
Some lenders will consider the money you borrowed from your 203 (K) as additional debt that will be added to your auto payments, student loans and credit cards. While this may seem unfair since you borrow from your own money, most lenders see it as an obligation that affects the ratio between your debts and income to qualify for a home loan. This can be a factor in choosing between making a FHA 203k home loan exceptional hardship withdrawal and paying taxes and penalties or borrowing.
Five ways to speed up the loan process
We must mention that “working with us” is the first way! When you let us find a loan that’s right for you, you can take full advantage of some of the best technology and expertise in the region to get a loan decision and financing quickly.
But there are five “other” ways to speed up the process of getting a mortgage loan:
- Have all documents ready and in one place. Elsewhere on our website, you will find a list of things you may need to support your mortgage application. If you put all of them together and keep them in a safe portable place, such as a special pocket or folder, you can reduce the time needed to find things you may need. In addition, it will reduce your own level of worry and confusion.
- Be honest and whole when you complete your application. “Faking” your employment or residency history, or omitting the open credit accounts you prefer not to be considered, does not increase your chances of getting a favorable loan. In 100 percent of cases, this makes the process more difficult, and longer.
- Respond quickly to requests for additional information. During processing, we, or the lender considering your loan, may need additional information. Provide them as soon as you are asked or call back as soon as you get the message.
- Be prepared to explain the overrides in your credit report. This is really part of number 2 above. If you were sick or divorcing when you missed a payment or made late payments, or if you have other late payments or delinquency on your credit report, be prepared to explain them. Be honest and do not be nervous! The person processing your loan does not judge you; she tries to fill every hole in her paperwork.
- Let the evaluation agent enter! Evaluation is one of the longest parts of the mortgage process. Studies have shown that the most important factor of “wasted time” is the inability of the assessment officer to reach homeowners to make an appointment. If you refinance and the appraiser calls to make an appointment, fix it as soon as possible for both of you.
And do not forget that the appraiser does not want to buy your house. He or she will tell you what your clean and tidy house is worth and in good condition, even if you have clothes to wash on the floor of the laundry room or dirty dishes in the sink. Cleaning will not increase the evaluation! However, letting the appraiser in as soon as possible will allow you to get a loan faster.