Two Questions About Changing Living Situations

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  • #63504

    We are having a pretty dramatic shift in living situation – sold a house, paid off all of our credits cards, and moved into an apartment – right in the middle of trying to get qualified. I’m wondering if anyone has specific insight into these two aspects of that (though I’ve emailed our MC as well):

    1) Our “rent” is $2,245, but there’s an additional $197 in mandatory payments on the same bill, for “technology package” and “parking” which despite being listed separately are not optional. Do we count only the $2,245, or the entire payment we make? I see this as similar to an HOA fee and am thinking it all should count, but this is not the moment to make bad assumptions. By the same token, if it does not count, there’s going to be a mismatch between the amount on our rental statement and the amount being withdrawn from the bank.

    2) In addition to our previous housing payment, and paying down credit card debts to meet our Payment Shock, I had been counting my 401k that exists solely for the purpose of this house. The MC and UW seem to be having a LOT of confusion on the documentation of this. Should I just stop contributing now and save the cash in my bank account instead to keep the books cleaner? Or will the change be more confusing, since we’ve been submitted with the 401k for previous months?

    Bottom line here is that there’s no practical reason we can’t demonstrate a payment and savings far above what our new mortgage will be, but I don’t want to risk any procedural error that delays us.

    #63505
    tricey718
    Member

    I know for your first question, only the base rent will count. I was in a similar situation where cable and etc. was “included” in my rent but that amount wasnt counted. So the $2,245 is your rent amount.

    #63506
    Nelsont
    Member

    I have seen on this board before where a rent payment that includes other mandatory charges both causes issues and results in your perceived actual rent.

    The way I am reading this is you are counting your retirement contributions as payment shock. That won’t work. You can certainly use any retirement funds you have for buy down but not much else. If you make the withdrawal your MC will be less confused. If you take out a 401k loan that works too but will count against your maximum monthly payment.

    I am not qualified to advise you on finances. I will say though that your payment shock is supposed to be extra money post tax you actually receive but don’t spend. 401k is pre tax that you never actually see.

    #63508

    I’m not sure I follow, @nelsont . I was explicitly told I can use the 401k contribution as Payment Shock, with the understanding that I would stop contributing to it once we make the purchase. I am disappointed to hear there’s a discrepancy about the rent payment information – that makes me really uneasy. I guess I’ll see what my MC has to say as well.

    #63512
    Nelsont
    Member

    Don’t take my word as gospel. I would not think you can use retirement contributions as payment shock. You definitely want to get confirmation before you move forward.

    #63573
    Peapod0609
    Member

    I didn’t think you could use the 401K as payment shock either, but I am pretty sure my MC counted it. It was a surprise to me. If your MC says it counts, then go by that.

    Unfortunately, the rent thing has been an issue for other members as well. I think only your base rent counts 🙁

    • This reply was modified 10 months ago by Peapod0609.
    #63577

    Thanks for the heads-up. I would have been super unhappy since our MC hasn’t deigned to answer that question and December is nearly over.

    #63621
    TTrumble
    Member

    Hello BakerTheBaker,

    Here’s the lowdown on 401k contributions…

    Yes, they can be counted toward Payment Shock Savings, but I have always considered that a dangerous move that should not be done unless absolutely necessary. (Personal opinion: It also suggests that you may be trying to buy too much house.)

    By counting 401k contributions to PSS you are making a commitment to stop contributing to your retirement to make your mortgage payment every month. While in theory, your income should increase over time and you can at some point resume contributions, you are still hurting your future financial picture.

    The secret to 401k’s are the compounding of growth over time. The stock of the mutual funds in which most 401k’s are invested grows an average of 10% per year, and thus doubles in about 7 years as a result of compounding. Money that isn’t put into the account never has the opportunity to grow. You could be seriously shorting your own future using your 401k contributions for PSS and your mortgage payment.

    I’ve seen those apartments where you have your rent plus “non-optional amenities”. One place I know of even organized protests when the management started adding them. Unfortunately, they cannot be added to your base rent, but depending on what the “amenities” are, it might be possible to have them considered part of PSS, especially if it’s something you definitely won’t have in your own home such as a Parking Fee or a “Usage fee” for delivery lockers on the property. (Yes, the management office wiggles out of accepting UPS and FedEx deliveries and charges you for it at the same time, even if you never get a package and don’t use them! 😛 )

    Talk to your counselor and let’s see what we can come up with.

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    #63624

    Thanks very much for the clear response, Tim, as always. The fees include a $100 “parking fee” and a $98 “technology fee” so with luck we can at least count the parking. The payment we are aiming for is definitely not too high compared to current expenses, there’s just been a huge disconnect with the MC being able to follow the documentation, so now I am trying to ensure we count every dollar we can and not end up short. Hopefully it will all work out one way or another. I appreciate the advice on the 401k. In this case, I do have two other retirement accounts, and was only contributing to the 401k for the match – because one doesn’t give up free money. I am on-track for retirement, even without the 401k. We discussed all of this at-length with UW at the Upstate NY ATD event, and did exactly what he asked us to do, so I just need to make sure the dots keep connecting through these big shifts.

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