Should you use a 401k to prevent foreclosure?
I’ve seen this published in several places, it seems like a growing trend due to the increase in distressed homeowners.
“Many homeowners facing financial difficulties used to look to home equity as a resource to cover shortfalls. But with that option off the table for many, increasing numbers of people are considering tapping into a second large asset — retirement savings.”
From SeattlePI.com
There’s a saying about the inadvisability of throwing good money after bad, it’s pretty appropriate in this situation. 401k’s are a retirement vehicle, and there are significant penalties for early withdrawals, even in a hardship situation. You can often borrow against the 401k, but should you?
If a foreclosure process is imminent, the borrower really needs to take a strong look at their finances, the property and their loan(s), and the real estate market in their area. If there isn’t enough money coming into the household to be able to make the payments, foreclosure is inevitable. If a job loss caused the default, is the expectation of new employment realistic, or is it just hope? The use of retirement money to buy a few more months probably isn’t the wisest choice in this type of situation. On the other hand, if there was a financial setback that has since been resolved, then the thing to do is talk to the lender about a forbearance plan. It’s a much cheaper solution than using retirements funds.
If there’s been a financial setback, and the local real estate market has dropped in value, there is no point in using retirement funds to stave off foreclosure. It will take years for many markets to recover some of the losses, buying a few months more time with 401k funds probably won’t get enough time to allow for market recovery.
Hard choices, but retirement funds should be left for retirement, using them to delay foreclosure for some time period really does fit the “good money after bad” concept you should be avoiding.
April 26th, 2008 at 12:54 am
I have a real problem with the government taking money out of my check to give to someone that made a bad choice and bought more house than they can afford. I also have a problem with my tax dollars being used to bail out billion dollar corporations.
There is a thing called personal choice and people should be responsible for it.
April 29th, 2008 at 1:43 pm
I hate the idea of people using retirement fund to bail themselves out of a housing mess. Lenders see about 70% of the loans they modify fall back into default.. what happens to the homeowners who use their retirement money and end up out anyway… even if they can keep the house long term… how can they retire? who is going to bail them out then?
June 26th, 2008 at 11:58 am
I hate all of it too,, and yes there is personal choice.
The bad thing is the ones that use retirement funds for bail out, will probably end up losing their home later on down the road. Anyone facing a foreclosure situation should really visit these guys, mortgagebuyerbasics.com instead of using up the retirement funds. THere is other choices out there, if you know where to look
August 18th, 2008 at 1:19 pm
How Can You Save Your Property From Foreclosure
Mortgage insurance companies as we all know are helping banks and homeowners to avoid foreclosures.
Surprisingly as it sounds these mortgage insurance companies will even put some of their own money to help homeowners to make the payments for their homes.
1.Why do mortgage insurance companies willing to put their own money?
2.How can we know if we’re insured by these insurance companies?
3.Why these big corporations help banks and homeowners?
4.Will the insurance companies help the homeowners also if they’re not insured?
Lots of homeowners don’t have a lot of knowledge about their loans. Some people don’t even know their own Interest rate.
So I will assume that most of you out there will not understand the term pmi (private mortgage insurance).
What is pmi?
pmi is a policy which the bank act as the beneficiary and the borrower makes a monthly payment for the insurance of course.
The pmi(private mortgage insurance) protects the banks in bad times like today, when a lot of homes are foreclosing or selling through a short sale and the banks are loosing a lot of money.
When do you pay pmi?
normally if you buy a house or refinance your existing house there will be a very important issue that can also prevent you from qualifying, and that is the ltv (loan to value).
If you take a loan with more then 80% ltv (loan to value) then you will probably will pay pmi.
Some of us will remember great times that we could loan more then 80% of the value of the home but then we also had to take a second mortgage loan or an equity Line of credit loan of 10% or even 20%, but those days are long over.
Today banks will want you to put more down so you’re not going to let go from the house and also so the banks will have a pmi(private mortgage insurance)to be protected.
I know that it sounds that the insurance companies are just there to protect the banks.
That’s not true they’re helping homeowners too, as I said before that they will help you with payments and they will also partner with credit counseling agencies to help homeowners with their payments.
Insurance companies will try contacting you through phone or they will be mailing you letters to refer you to different websites so you can get an idea what to do next with your home and save your home from a foreclosure.
Mainly what you really need to do if you have any problem with your house and you’re negative with your payments first you should contact your lender.
Your lender will guide you what to do next.