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Mortgage with no set job?  RSS feed

 
Caroline Rodgers
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My family and I are planning on pseudo-retiring in a year.  We will definitely scope everything out before committing to a purchase, but I don't like the idea of getting locked into a lease.  When we make the switch, we will have enough for a 20% down payment, enough money to be fine for at least a year with no income, and will have about 3x the purchase price of the land\house in our 401Ks. 
Since we already have more than enough money if we wanted to cash out our retirement, would that help at all in getting a mortgage?
 
Tyler Ludens
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I think the bank is going to want to know how you plan to make payments with no income.  If your plan is to cash out your retirement anyway, why not pay cash and avoid the money waste that is a mortgage?

 
Caroline Rodgers
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It was more of a plan to not touch the retirement until we're closer to typical retirement age and get a job\s in the meantime to be productive and to pay for our day to day expenses
 
James Freyr
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Personally, I would pay for the land/home in cash if you have it. Cash is king. I am absolutely terrible at predicting the future, as I bet you are too. We don't know what the economy may be like in 5 or 10 years. Everyone needs a home, wether it's a cave, a wofati, or a more traditional dwelling. If you think this move will be your forever home, I would pay for it, especially considering it would only require a third of your savings. If things go south and you have no income, there's no monthly note breathing down your neck. No one to take it from you. All you have to be responsible for are the taxes.
 
Caroline Rodgers
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That's a really good point.  I'll have to take a look at the math and best/worst case scenarios.  My husband and I are only in our early 40's with a 5 year old, but we've been crazy savers and ignoring the "Jones's" to be able to be in this financial situation.  We've been living to work to live in a big city, but I want to go working to live* situation and raise my daughter like I was raised. 

*eating to live vs living to eat\overconsumption


ETA: husband and I both agree that we want to buy a property to raise our child, grow old in, and die in...... One floor houses for the win!
 
Caz Nicole
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Location: Inland Northwest/Eastern Washington
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In a somewhat similar situation. Was laid off in November and have a decent enough chunk in my 401k and IRA to put toward a property and looking only at those I could pay for outright with that money. The only painful part is the extra 10% penalty and with the tax draw off of the cash out, reducing the number I have saved by 30% feels painful.

I believe there is a possibility to avoid the penalty at least if you are purchasing a first home and it will be your primary residence. I have purchased a home in the past so not sure I qualify but it's on my list of questions for my lawyer in the coming months.

If you have extra left over even after taking a withdrawal that could pay for the property/house, I would 100% go for that, it still leaves you savings and it also reduces the uncertainty of that particular chunk of cash being lost in whatever market downturn may happen (one always does eventually.) Magical money in a bank made up of 1's and 0's in a computer system seems less stable to me than using that to pay for your property outright and that property has actual tangible value vs a computer bank statement. My 52 cents!

 
Caroline Rodgers
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Caz Nicole wrote:In a somewhat similar situation. Was laid off in November and have a decent enough chunk in my 401k and IRA to put toward a property and looking only at those I could pay for outright with that money. The only painful part is the extra 10% penalty and with the tax draw off of the cash out, reducing the number I have saved by 30% feels painful.

I believe there is a possibility to avoid the penalty at least if you are purchasing a first home and it will be your primary residence. I have purchased a home in the past so not sure I qualify but it's on my list of questions for my lawyer in the coming months.

If you have extra left over even after taking a withdrawal that could pay for the property/house, I would 100% go for that, it still leaves you savings and it also reduces the uncertainty of that particular chunk of cash being lost in whatever market downturn may happen (one always does eventually.) Magical money in a bank made up of 1's and 0's in a computer system seems less stable to me than using that to pay for your property outright and that property has actual tangible value vs a computer bank statement. My 52 cents!



Your response came at the right time.  I had just done the math and after calculating how much we would pay in interest vs taxes and deductions- it was about even.  However_ when I calculated how much the money in my 401k would make in 20 years- I just melted into a puddle of sad.
But our current system is just in no way sustainable. I want to do the responsible thing (well as responsible as any one person can be who wants to throw away a high earning job in SoCal for a much simpler and cheaper lifestyle)
Ugh, "adulting" is hard.
When I was a kid, I thought all grownups magically knew what the right thing to do was.  Such a bummer that this isn't true.  If you hear back from the lawyer about the 10% thing, can you update your post?
 
wayne fajkus
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Im pretty sure you can take a loan from your retirement account. I did it many years ago. It had to be either for a house or medical expenses.

I paid interest on the loan, but the interest goes back into your account. I basically made money off myself.

It's probably been 20 years and laws change yearly, but it's worth pursuing.
 
Caroline Rodgers
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wayne fajkus wrote:Im pretty sure you can take a loan from your retirement account. I did it many years ago. It had to be either for a house or medical expenses.

I paid interest on the loan, but the interest goes back into your account. I basically made money off myself.

It's probably been 20 years and laws change yearly, but it's worth pursuing.


I was totally planning on doing this, but then I found out that you have to be working at the company that your 401K is associated with and have to pay it all back right away if you leave.  Also- not all companies are required to provide this as an option.  Blargh.
 
Greg Carson
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Location: Langley, Canada
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i'm a Canadian, and as i understand Americans can write off mortgage interest (we can't in Canada). my advise to you would be seek the advice of an actuary (they are people that do long term math based on all your wishes and wants, in in a simple explanation, to give you your probabilities and your possibilities. My wife and i consult with ours every 2 years to determine when we can stop working. the last consultation told us that based on our needs and wants that based on all recorded data since (and including) the depression in the '30's, we have a 75% chance of not going broke before we are 90 years old. how you individually interpret the results is based on your belief of the probability of the future. ). i'm an admirer of the permaculture  way, and try to integrate as much as i can into our urban living situation, and am always looking for advantages to change having to work for a living into wanting to work for a living.

i have always found that if you have a personal connection/ relationship with anyone you deal with (ie: bank employees in particular loans officers), you are more likely to get favourable treatment from them versus a "stranger".
make me envious of you by being successful, then let us know how you did it!
good luck!
greg
 
Todd McDonald
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Location: Mid-Missouri
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I've heard one simple question that seems to bring the argument for having a mortgage to its knees.

Put the shoe on the other foot. If you already owned the land and home outright, would you be willing to take out a mortgage on it so you could invest in the stock market??

My brother, who is a certified financial planner, tried to tell me that it was still worth it if your interest rate was low enough however I still feel that the markets have a lot of uncertainty, and for someone who wants to grow food, land offers a lot of security. The follow up to the question above is: If after you own your land outright you change your mind, you can always go out and get yourself a mortgage. 
 
Corrie Snell
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Location: San Francisco, CA for the time being
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Hi, Caroline!

I seem to be in the minority with my opinion on the big, bad mortgage...at least among those who are most vocal on the topic, here on Permies.  I believe Tyler's initial response is correct, the bank wants you to have an income in order to give you a loan (however they will definitely look at all your assets, including 401k).  I'm quoting Ric Edelman, a financial planner, "a mortgage isn't a loan against the house, it's a loan against your income."  Could you apply for the loan and go through the whole purchase process before quitting?  As you said, you have enough for 20% down, and enough to live off for a year (does this include enough to make a mortgage payment and pay for all the fun projects on the new property?).  You mentioned in a subsequent post that you would get job(s) in the meantime, could you earn enough to make the mortgage payment?  I am on the side of leaving the money in the 401k and not paying that sickening penalty.  I mean, why not get a mortgage, and only cash out enough to make 2-3 years worth of the mortgage's payments (or whatever makes sense, 1 year, 5 years)?  That seems to be a flexible option.  If life is telling you to pay off the house with 401k money at the end of that period, then do it!  If it's not, and you need more money to make the payments, cash out another chunk (that chunk will have been -hopefully- growing in the meantime), and leave the rest to continue to -hopefully- grow.  When you did your calculations comparing 401k cash out penalty to mortgage interest paid, did you include the mortgage interest tax deduction?  I think that's a biggie.  Of course, you have to have an income to write it off of!

True, no one can predict the future.  You need to make a plan with what you know.  Another one of your posts (the one where you said you calculated how much the money in the 401k would earn over the next 20 years) makes me believe that you're not a doomsday-er, and you "believe" that the system we currently have will be more or less the same in 20 years, and perhaps for the rest of your life, so go with that.  Also along this line of thinking, you may want to include in your plans and thoughts that the place you choose may not end up being your final home.  My husband and I bought a property and began our homesteading adventure in 2009, assuming it would be where we'd stay forever.  It took me only one year to realize I'd made a mistake, and it's taken these past 7 years, and will probably take a couple more, to recover from that (long, expensive story).  But, you gotta plan with what you know.  We definitely learned some lessons.

For further reading, please consult the thread I started about a year ago: Mortgage thread

You're right, Caroline, adulting is hard, and (another line from Ric Edelman), "Money doesn't come with instructions."  This is a HUGE, TURN-YOUR-LIFE-UPSIDE-DOWN-DECISION.  You're an intelligent person, we're intelligent people, it helps to confer with others to get different opinions, but I would urge you to get professional advice.  Heck, go to two financial planners, to see how their proposed plans for you differ, then make a confident decision.

*Please, don't think I'm trying to promote Ric Edelman.  He's who I've chosen to take financial advise from, though, and so I pass on what I feel I've learned from him.
 
Caroline Rodgers
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I can't thank all y'all enough for your input. Not everyone agrees, but that makes it even better.  I'll consult with a couple of professional s, but this forum is just what I need. 
 
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