Contributions to IRA/401 and Payment shock

Home Forums Purchase Program Contributions to IRA/401 and Payment shock

Viewing 13 posts - 1 through 13 (of 13 total)
  • Author
    Posts
  • #39254
    Ramona
    Member

    Can anyone tell me if my monthly contributions to my IRA and two 401ks count towards my payment shock? In other words, I contribute about $150/month to my IRA and 401ks every month. Does that mean, for example, if my payment shock is $200, that I only have to save an additional $50 per month? My concern is that I will have to stop contributing to my retirement during the process because I need to save my payment shock. Hope that made sense.

    #39255
    DeeCee
    Member

    I can’t remember what happened during my process, but I don’t think my mortgage counselor really looked at my IRA savings as a part of payment shock. The point of payment shock is to make sure you can afford everything, so theoretically, if you had a mortgage, you’d have to stop contributing to your IRA right if this “test period” would cause that? I’m not sure how they do things, so take what I’m saying with a grain of salt!

    • This reply was modified 3 years, 3 months ago by DeeCee.
    #39257
    Ramona
    Member

    I guess that also means that I would need to take the foot off the gas on my debt snowball too since I was throwing every penny I could to get that debt down.

    #39335
    jclucca
    Member

    I don’t know how they look at it, but since your contributions to your 401k are pre-tax, discontinuing them will not give you a dollar-for-dollar increase in your take home pay. You will be taxed on the amount that would have been contributed.

    #39338
    Ramona
    Member

    Great point @jclucca I hadn’t looked at it that way. Thanks

    #39595

    I could of sworn that I read that your 401k contribution could be used for your payment shock. @Ramona did you ever get an official answer on your question?

    #39606
    Ramona
    Member

    Hi @Searching4Homes, I haven’t received an official answer yet. Maybe @ttrumble might be able to give some guidance. I’d hate to have to stop contributing to my 401k but our payment shock and savings is almost $500 so I would have no choice. I really have no intention of spending the max we qualify for but, in the meantime, I thought it would be wise to just go for the max just in case and so that it forces us to save money before buying our home. I don’t want to buy a home that, in the end, prevents me from being able to contribute to my 401k but it might take 6 months to qualify and I don’t want to go that entire time not contributing to it if I don’t have to.

    • This reply was modified 3 years, 2 months ago by Ramona.
    #39617

    I took at look at my pay stubs and I contribute $500 per month. It’s pretty high because I’m trying to bring down my taxable income for the year.

    I found this from a prior post from Tim. The only question I would want to know is how would they enforce not contributing to the 401K after closing?! Additionally, if my payment shock is only $300 per month and I contribute $500 per month would I still need to stop contributing all together or just lessen the amount after closing?

    Response from Tim:
    TTrumble

    Hello tryinginmva,

    The full amount of your 401 k contribution (not any matching funds) can be counted toward Payment Shock.

    However, you should think very seriously before doing so. By counting your 401k toward Payment Shock, you are promising to terminate your 401 K contributions the moment you close on your home since those funds are now committed to your monthly mortgage payment for the next 15 or 30 years.

    You need to give serious consideration to the advantages or disadvantages of no longer saving for retirement before having your contributions counted toward your Payment Shock.

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    #39621
    TTrumble
    Member

    Hello Ramona,

    As the old saying goes, you can’t have it both ways.

    It’s pretty simple. If you want to qualify for the max amount and it takes the 401K contribution to do it, then that’s what it takes. But if “I don’t want to buy a home that, in the end, prevents me from being able to contribute to my 401k”, then you need to settle for a lower qualification amount. It’s one way or the other.

    You sound as if you’re trying awfully hard to second-guess yourself. What exactly is the “just in case” you referred to? You’re over-thinking things and trying too hard to have it both ways, which just doesn’t work.

    I don’t mean to be harsh here, but it’s actually a pretty black and white situation. Do you want a smaller house and a comfortable retirement, or a big home to worry in while you’re trying to figure out (like so many seniors) whether you’re going to buy food or medicine this month since you can’t afford both.

    In other words, it’s not a matter of finding an alternative. It’s about having priorities and making a choice.

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    #39622
    TTrumble
    Member

    Hello Searching4Homes,

    WE don’t have to “enforce not contributing to the 401K after closing”. The fact is YOU will enforce it one way or the other. If you close on a home with a payment that you used your 401K contribution to qualify for, but then keep making the contribution, then you can’t afford your mortgage payment. The extra money isn’t going to appear out of thin air.

    If only part of your 401K contribution is needed to meet the mortgage payment and you want to continue saving the difference, by all means do it! But in any case, if you are considering using some or all of your 401K contribution toward qualification, then remember that it WILL have to go toward your mortgage payment, at least until your income increases and you can genuinely afford to start making contributions (or larger contributions) again. You need to crunch some numbers to determine just how that is going to affect you when retirement age rolls around.

    This is a bigger, more serious issue than most people think. There are millions of people who will never be able to retire completely if at all thanks to the recession, extravagant healthcare costs and a generally predatory economy. Seniors are going to be competing with millennials for jobs in the not too distant future. You need to take a very balanced look at the future when you are deciding how you are going handle your 401K contributions going forward.

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    #39633
    Ramona
    Member

    Thanks for the insight @ttrumble! Lots for me to think about I guess.

    #39658

    Tim,

    I’m trying to make sure all documents are submitted by eod tomorrow. I’m super paranoid about the possibility of these interest rate hikes rumors.

    When I explain to my MC I am using my 401k for my payment shock should I provide any letter or additional proof such as monthly 401k statements to show my 401k is increasing each month? It’s obvious through my pay stubs, but everytime I think I’ve submitted enough on my file I’m hit with more items.

    #39664
    TTrumble
    Member

    Hello Searching4Homes,

    Don’t let the probability of the Federal Reserve raising interest rates this Thursday spook you. Mortgage rates are less tied to the Fed Funds Rate than most people think.

    The hike on Thursday will have a greater impact on short to medium term lending, such as credit cards and auto loans. Mortgages are still largely bundled into securities and bought by Fannie Mae, Freddie Mac, Ginnie Mae and private investors, which have little or nothing to do with the Federal Reserve. (NACA loans, by the way, actually stay on the banks’ own books, and are even less affected by short-term market rate fluctuations.)

    I won’t say that there will be NO effect, but if there is any, it will be minimal.

    Regarding the 401K contributions, it’s like I always say, “Better twenty pages too many than one too few”. If you have any concerns that your paystubs might not be sufficient, then go ahead and get the additional info. It certainly can’t hurt, and you’ll have the peace of mind that you did it so you can stop worrying about it.

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    • This reply was modified 3 years, 2 months ago by TTrumble.
Viewing 13 posts - 1 through 13 (of 13 total)
  • You must be logged in to reply to this topic.