I receive a lot of questions on the Home in Five Down Payment Assistance Program. The most popular question is of course regarding the availability of funds for non-targeted areas. Well, if you were waiting for these funds before making your purchase then wait no more. We have some good news today. I received an e-mail this morning that there has been $2,000,000 released for down payment assistance in non-targeted areas.

What does this mean to you then?

This means that money is now available for down payment assistance on properties that are outside the designated targeted zones but inside Maricopa county. Just so everyone is clear here are some quick facts:

• Borrower must be fully approved for a loan program which allows the use of down payment assistance (such as FHA)
• Borrower can use funds to purchase anywhere in Maricopa county.
• The borrower does not need to be a first time home buyer (for these funds).
• Have a property in escrow, appraised and underwritten - since the money runs out quick.
• The rate on this program is 6.3% and the assistance is 5% of the purchase price.
• Funds are disbursed on a first come first serve basis.

This program allows up to 5% down payment assistance.  Funds can be used to pay closing costs as well, it just depends on how you end up structuring the loan with your loan officer.

Just a reminder that these funds are HUGELY popular and go fast, so if you are anywhere close to finding a property…this is a SUPERB time to take the plunge!

Read more on the Home in Five Down Payment Assistance Program.

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The downpayment assistance program, which we participate in, the Home in Five Program (only for Maricopa county) had been running out of funds recently. Actually to be more precise funds for non targeted areas had been running out, there was always plenty of money for targeted and priority areas. Late last week the program announced that it would be reallocating funds to non-targeted areas. For those not familiar with the distinction, let me clarify the definitions:

Non-targeted areas: All areas outside of the targeted and priority areas within Maricopa county. There are income limits determined by household size and loan size limits based on the property type. The main rule is that you need to be a first time home buyer in order to purchase a home in this area (using the funds from the Home in Five program).

Targeted Areas: This encompasses areas designated in Maricopa county by the program and is determined by census track numbers. The income limit and purchase size limit is higher than for non-targeted areas. Additionally purchasing in this area entitles you to a better interest rate. You do not need to be a first time home buyer to take advantage of the down payment assistance if you are purchasing in this area.

Priority Areas: These are areas within the targeted areas which are being given additional preference. Hence, the income and loan size limits are even higher and the interest rates are even better than for targeted areas.

The process of determining whether or not a property is in a targeted or priority area is in fact rather cumbersome. Contact me or Aimee with an address and we can look it up for you. Just a reminder, the funds are disbursed on a first come first serve basis and the program makes no guarantees on availability.

Further reading on the Home in Five Downpayment Assistance Program is available here.

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Copyright Notice: © 2007-2008 Shailesh Ghimire (Arizona Mortgage Guru). This Feed is for personal non-commercial use only. If you are not reading this material in your news aggregator, the site you are looking at is guilty of copyright infringement. Please contact sghimire@gmail.com so we can take legal action immediately.

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During a recent loan pre-qualification process a mortgage applicant disclosed that he wanted to put 10% down on the purchase using money from his 401(k). We quickly pointed out that this may not be a good idea - considering the impact of taxes, withdrawal penalties and loss of future earnings. Additionally, since this borrower qualified for a FHA loan albeit for a lower amount, it didn’t make financial sense to make such a move.

I certainly can understand the temptation to use money from a 401(k) plan for a home purchase or even using it for emergency purposes. This is especially tempting if you have a decent amount of money in your account and you have recently faced some difficulties. However, I suggest taking a long hard look at this before deciding on a withdrawal. To help in this, MSN Money Central has a good article on this subject which outlines the pro’s and con’s of borrowing against a 401(k) plan:

The pros:

1. There is no credit check.
2. There is a low interest rate.
3. It provides a great return.
4. The interest is tax-sheltered.
5. It’s convenient.

The cons:

1. About that credit check: Of course there isn’t one. You’re not borrowing anything. You’re spending your own money.
2. You’re losing interest. The net effect is that you have less money to invest and to earn interest.
3. It’s not tax-sheltered money anymore. Whether you repay the 401(k) loan out of your salary or from a bank account, those payments are all made back into the 401(k) with after-tax dollars.
4. Unless you repay the loan, it is considered a premature distribution. You would owe federal and state income taxes as well as that 10% penalty if you are under age 59 1/2.
5. The loan isn’t tax deductible. It’s considered a consumer loan, so there is no tax advantage.
6. It affects your psychology toward retirement saving.

While it is up to an individual to decide if they want to make a withdrawal on their 401(k) I personally would not recommend this course of action - certainly not for a home purchase. My main concern is point #6: your psychology towards saving for retirement. I think the moment you tap into your 401(k) it’s easier to do that again and again. Then it just becomes another savings account (very expensive one), but you destroy your ability to save!

The main reason to not borrow is because there are still so many loan options available to purchase a home. FHA allows you to borrow up to 97% of the home value and allows 3% gifts. So, in essence you can do a 100% loan with little out of pocket money. The FHA loan limits have been recently increased and in many markets this limit is well above the median home price. So it’s not like you can only buy the bottom of the barrel homes with FHA. You can actually buy your dream home.

The better option is therefore for you to work with a mortgage loan professional and make a six or twelve month plan to reposition your credit, income, savings and investments. This effort on your part can help you purchase a home without touching your 401(k). Home prices are not increasing at astronomical levels - so there is no reason why you shouldn’t wait until you’re much better positioned to make a sound purchase. That way you’ll