Use of HELOC to fund Retirement Home During Relocation?

Too risky. You do not want to feel pressured into accepting an offer on your current home because you already have purchased another home. Instead, when the time comes, sell your home, then rent in the area where you want to live. Meanwhile, use tools like

to get an idea of what the housing market in your new location is doing.

I agree with Elle. In fact, I would go further and suggest that there are other real estate strategies that used to be "somewhat aggressive" and which are now "substantially aggressive". (My opinion.)

Included in this category are accepting a contingent sale offer and taking one's home off the market while someone else tries to sell their house; accepting offers with only modest earnest money deposits; and providing mortgages for the buyer where there is not a substantial down payment. (Regarding taking back notes, I would insist on a variable rate mortgage.)

In fact, I am asking clients to forego looking for new homes before closing (actually getting the cash) on their old home. The likelihood is that they will find the house-to-die-for quickly and place great pressure on themselves to accept offers on the current home that they would not normally entertain.

-HW "Skip" Weldon Columbia, SC

Nobody can predict the future. If house prices are falling and you buy now and sell later you lose the difference in price. If house prices rise and you rent now and buy later you lose the difference in price. The opposite situations you win. Life if risk, go with the percentages. Doing a double move with a rental is a big hassle.

Yes. Carefully factor in fees. You may have fees to open the account and to close it early. My HELOC was $0 to open, but $500 to close early (less than 3 years). I ended up paying that fee when I closed it without using it when I sold the house. Your HELOC gets paid off when you sell your house. This isn't a total ripoff, house appraisals can cost a couple hundred of bucks and the lender had to do this to give me my HELOC. You may only be borrowing for 3 months, so carefully look at fees to determine the real cost of borrowing.

It is good to be able to put down 20% of the purchase price. This avoid Private Mortgage Insurance (PMI) which is very expensive insurance for the benefit of the lender. If you are retired and can't easily earn a higher rate than the cost of your mortgage, paying off a bunch of your house may be a good thing. You may be in a low income tax bracket in retirement. Just make sure you have enough income to do this, without relying on savings.

Lenders like you to have money in IRAs and 401Ks, but it is not collateral.

ERISA (IRA and 401Ks) often cannot be attached by a judgement (except by the Federal Government of course). There are ins and outs here, so you have to know your state laws and the "articles of incorporation" for the instrument. The money IS fair game once you distribute it (take it out). How close to 59 1/2 your are and able to take distributions is an important factor. You want to take many small yearly amounts rather than a few big chunks to keep yourself in a low tax bracket.

Enjoy your new house and retirement!

"speednxs" wrote

As far as the OP's question is concerned, home mortgage lenders who offer incentives of any kind based on the contents of a potential client's tax sheltered retirement plan(s) are in violation of federal law. Legal distributions from such plans are, as speednxs implies further down in his/her post, another matter.

Of course, if the OP has a pile of money in a Roth IRA, s/he should check how much s/he can withdraw without penalty (per Roth IRA rules) and maybe weigh using this for her/his home purchase. S/he should bear in mind the loss of the tax free growth, among other things, of any withdrawal so made. The best financial planners discourage such withdrawals, IMO, for the security of the client's retirement.

Lastly, one may take a "bridge loan" from one's IRA. It must be paid back within 60 days, IIRC. I think for many this is a great and safe way of juggling money between accounts at times, as long as the intent is for the dust to settle, with minimal loss, in that 60 days.

How does it help to accept higher earnest money? Do you think this brings more motivated buyers? In my (limited) experience selling property, it seems that the buyer can get their earnest money back for many reasons which are pure bull, although that gets harder as the deal progresses.

Just wondering what your thoughts are on this,

-Will

I dont think you have enough money saved for retirement if you have tio worry about these modest amounts. So I recommend not taking early retirement if this is so much a struggle now.

You may be right, but - OP stated a 'substantial' Federal pension. That may mean replacing his income 100% had he held the job long enough. Also mentioned 401 and IRA totaling more than the cost of the new house. He sounds like a) he'll head into retirement with a good income, but b) much of his savings is illiquid in 401k and IRAs.

The original question, still unanswered, is how a bank will view his situation with respect to a new mortgage post-employment. I suspect they'll qualify him based on the income he receives in the form of the pension. That seems like a better income stream that most employer paid jobs, which can be lost. Just my gut instinct on this. JOE

A few points. In the one house I sold, my realtor told us to SELL one house BEFORE signing contract to purchase another. This required an apartment in the middle... you make it sound like you have a long distance move, so I would think you would need a storage facility for a portion of this move anyway. Sell your current house. Then when time is right purchase a more desireable house in a more desireable location.

A few reasons:

1) You no longer want the house you live in now. Houses are NOT liquid assetts. If there is a willing buyer, find the buyer, get a good deal and wait for the right deal. 2) If you are in a high price housing district (like Washington DC) and buying a house in a cheaper area (closer to family), you will have cash in the bank when looking to close on the retirement house. 3) Timing is everything. If you choose not to sell until you move, the stress is making the timing work out between the sell, move and purchase. That is a lot to ask for (making the timing work out). If you choose to sell, use storage, move and then buy a new house, you have more control over the discreet things happening, and fewer items timing is dependant on other items.

Joe,

You've captured my situation accurately. A good pension that I expect I will be able to live off of (or will at least cover 90% of my living expenses) and most retirement savings in illiquid accounts (IRA's and

401(k)).

Thanks for your input.