[vikingruss]

My wife and I have recently put a bank owed property under contract. The property originally sold for $228.000 in 2007 in Saco, ME. We have it under contract for $175000. This is a fair price for this property, even in this market. It is fairly priced at $200000. My question is, should I, and my new bride, go through with the purchase given our financial situation? The bank financing we are using is a program that allows us to put down 3.5% with a fixed 30 year note of 4.99%. We do not have 10% to put down on any other program. To qualify for this program we have to have good credit scores. Mine is 767, and my wife's is 776, so we are OK. The other requirement is that the debt to income ratio be 45%. Here is the problem. Our debt to income ratio is 48%. My wife and I are both divorced and we are carrying some debt from those marriages. I have credit card debt totalling $11,000 and my wife has credit card debt totalling $5500. My car debt is $6500 and my wife's is $6500. I also have child support totalling $1300 per month for at least the next ten years. I also own a two family building that I bought in 2006 for $260000. I owe $246,000 and it is worth $215000. I have it fully rented, and it is paying for itself. I earn $62,000 and my wife earns $36,000 per year. I have a 401K worth $25,000 and my wife has a retirement IRA worth $110,000. And a 401K worth $3000. I have no other savings. My wife has about $4000 in savings. In order to qualify for the loan, the bank wants us to pay off both car loans and one of my credit cards for a total payoff of $20000. The down payment and closing costs is going to be another $13000. My question is should I take out $21000 out of my 401k (I am 100% vested), and my wife take out $15000 from her IRA and buy the house? We would be closer to being debt free, and able to own a nice little house together. I realize we would have tax consequences on the money we take out. I am able to claim 2 children on my taxes this year so that will help out a lot. Is this a sound financial decision, or should we both put off buying a house until all our debt is paid? We both have two more years on our cars, and about 4 more years on our credit cards. We are both turning 49 this year. If we wait too long to buy, we will be still paying for the house in our retirement years. What is your advice? Thank you!

[FirstChair]

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Tap Retirement Funds To Buy A Home?
By, Stephane Fitch

(Click link or continue reading>>)
Tap Retirement Funds To Buy A Home? - Forbes.com

If you're straining to come up with funds for a down payment for your home, you may be tempted to tap one of your retirement accounts. In principle, it's not a good idea, since you'll need those funds for retirement and you could end up paying a heavy tax price. But in certain circumstances, it may be a reasonable approach.

Generally, a straight withdrawal from a pre-tax 401(k) or traditional individual retirement account is a bad idea--it's simply too costly. The distribution will be taxed as ordinary income at federal rates up to 35%, there are state income taxes to fork over, and there's usually a 10% federal penalty too.

But if you're a younger person buying your first home, a modest out-and-out withdrawal from a traditional IRA can make some sense, says Mike Johnson, a principal at St. Louis-based Moneta Group, a financial planning firm. That's because the law allows first-time home buyers to draw up to $10,000 from a traditional IRA account without being hit by the 10% penalty, so long as the funds are used for a home purchase within 120 days. (For more on how to get money out of a retirement account without penalty, (Click link>>)

How To Tap Retirement Funds Penalty-Free - Forbes.com

Since your withdrawal will be taxed, try to time the withdrawal and the home purchase early in the year. That way, you'll maximize the mortgage-interest deductions for the year, offsetting some or all of the extra income. (Remember, any points you pay on the initial mortgage to buy a home are deductible in the first year.) If your purchase falls through, be sure to roll the money back into an IRA within the 120 days to avoid taxes and a penalty. (This is a special time. Normally, you have only 60 days to complete an IRA rollover. For more on rollover rules and what happens if you miss a rollover deadline, (Click link>>)

The Dog Ate My IRA Rollover - Forbes.com

Another approach that can make sense is withdrawing money from a Roth IRA. The contributions you made to the Roth weren't tax deductible to begin with, and you can withdraw your original contributions (not the earnings) at any time without owing any taxes or penalty. That flexibility is one reason why Roths are a good vehicle for young folks who want to save for retirement, but worry they might need the money for other expenses first. (For more on the advantages of a Roth, (Click link>>)

Retirement Savings, Without The Strings - Forbes.com

The downside? By depleting your Roth, you're giving up a valuable hedge against future higher tax rates, since all withdrawals from a Roth in retirement are tax free.

What about tapping your 401(k)? In most cases, you'll want to forget about an out-and-out withdrawal and work instead with your employer to arrange to take a loan from your 401(k) account. The law allows you to borrow up to half your vested balance or $50,000, whichever is less, without triggering taxes or a penalty.

If you've already maxed out the amount you can borrow from your 401(k), the law also allows you to take a "hardship" withdrawal from a 401(k) to buy (or keep) a primary home. But you'll be socked with both ordinary taxes and the 10% penalty for this withdrawal, and you'll be barred from contributing to your 401(k) for six months. (Note that while the law allows for both loans and hardship withdrawals, your employer doesn't have to permit either of them and can limit the circumstances in which they're allowed. So, for example, your employer might not consider your desire to buy a home a "hardship.")

Borrowing from your 401(k) isn't like pledging retirement funds as security for a bank loan--you'll really be selling stocks or bonds owned in the account and using the proceeds to fund your loan to yourself. You'll make principal and interest payments back into your 401(k). So where your 401(k) previously owned stocks or bonds, it will now own a fixed-income investment in you. The interest rate is set by your employer, usually at a percentage point or two above the Libor or Prime rate. Normally, loans from a 401(k) must be paid back within five years. But for a home purchase, an employer can agree to a 15-year repayment schedule.

Proceed with caution here: If you leave your job, your employer is likely to demand immediate repayment of the loan. If you can't come up with the cash, it will be treated as a withdrawal, again subject to both ordinary income taxes and (assuming you're young) a 10%early withdrawal penalty.

(Click link>>)
Tap Retirement Funds To Buy A Home? - Forbes.com

[Fr_Chuck]

I would also say, I am not sure that 175,000 is such a good price, have you reviewed other foreclosures in your area. I say that, since a home that sold for 200,000 in 2007 in Atlanta GA now sells for about 40,000 dollars now. I can buy dozens of 175,000 dollar homes for under 40,000. ** in fact I have bought some.

You may want to inveistigate and see if this is really a deal, with the extreme impact foreclosures has had, often just driving 30 min in one direction or another will find you homes at 1/2 the price.