Posted: 10/12/2011 9:02:53 AM EDT
|
I was divorced two years ago, one of the terms of the divorce was that I had to refinance the house to remove ex's name from the mortgage by the end of this month. Unfortunately, one of the issues that took time to resolve during the divorce was dealing with some tax debt from ex's writing, which meant we had a state tax lien that significantly impacted my credit score to the point that I wasn't able to qualify to refinance until recently (the lien was paid off as soon as we reached a settlement agreement on who got what debts/assets). I received a conditional approval to refinance late last month, to pay off $117k ($101k for mortgage, $16k for home equity, I'll knock $1k off in principle by December) in mortgage and home equity loans. Unfortunately, the appraisal came back $24k less than the house had appraised for two years ago, which means at 80% the most I can refinance is $108k, leaving me with $14k I need to bring to closing. By cutting back to minimum payments on credit cards I can probably have $4-5k cash by closing (currently set for the 12th of December, if I don't have to make the mortgage payment due by the 15th that'll give me another $1k). From what I can tell, my options are cashing out a 401k which currently has a value of $16k or putting the remaining balance on credit card (at a 29.9% interest rate, which is why I was trying to get that card fully paid off in the next few months). Since the mortgage and home equity loan were taken at different times, my refinance is apparently considered a 'cash out refinance' so I can't do PMI, which is why I can't roll the additional costs into the mortgage. Once the refinance is done, I'll have cut my mortgage expenses by $4-600/month. I'm currently leaning towards nuking the 401k, I can't take a loan against it because it's through a former employer, based on my reading of the rules, I know they'll take 20% off the top for taxes plus I'll have to pay another 10% penalty, which will leave me with fairly close to the amount I need for closing. Any other options anyone sees? |
|
Quoted:
I was divorced two years ago, one of the terms of the divorce was that I had to refinance the house to remove ex's name from the mortgage by the end of this month. Unfortunately, one of the issues that took time to resolve during the divorce was dealing with some tax debt from ex's writing, which meant we had a state tax lien that significantly impacted my credit score to the point that I wasn't able to qualify to refinance until recently (the lien was paid off as soon as we reached a settlement agreement on who got what debts/assets). I received a conditional approval to refinance late last month, to pay off $117k ($101k for mortgage, $16k for home equity, I'll knock $1k off in principle by December) in mortgage and home equity loans. Unfortunately, the appraisal came back $24k less than the house had appraised for two years ago, which means at 80% the most I can refinance is $108k, leaving me with $14k I need to bring to closing. By cutting back to minimum payments on credit cards I can probably have $4-5k cash by closing (currently set for the 12th of December, if I don't have to make the mortgage payment due by the 15th that'll give me another $1k). From what I can tell, my options are cashing out a 401k which currently has a value of $16k or putting the remaining balance on credit card (at a 29.9% interest rate, which is why I was trying to get that card fully paid off in the next few months). Since the mortgage and home equity loan were taken at different times, my refinance is apparently considered a 'cash out refinance' so I can't do PMI, which is why I can't roll the additional costs into the mortgage. Once the refinance is done, I'll have cut my mortgage expenses by $4-600/month. I'm currently leaning towards nuking the 401k, I can't take a loan against it because it's through a former employer, based on my reading of the rules, I know they'll take 20% off the top for taxes plus I'll have to pay another 10% penalty, which will leave me with fairly close to the amount I need for closing. Any other options anyone sees? uh, shouldn't you both be bringing cash to the close to make up the difference? I would not cash out a 401k, it will cost you a buttload in taxes and it's never a good idea... don't chase bad money with good. If you can't sell it for what it will appraise for look to a short sale unless you think bringing in money will get you more than you paid in. The house belongs to both of you work out a deal and make sure they know what's happening. Open communication; i don't know why it's only your responsibility since the house belongs to both of you... |
|
Quoted: Quoted: I was divorced two years ago, one of the terms of the divorce was that I had to refinance the house to remove ex's name from the mortgage by the end of this month. Unfortunately, one of the issues that took time to resolve during the divorce was dealing with some tax debt from ex's writing, which meant we had a state tax lien that significantly impacted my credit score to the point that I wasn't able to qualify to refinance until recently (the lien was paid off as soon as we reached a settlement agreement on who got what debts/assets). I received a conditional approval to refinance late last month, to pay off $117k ($101k for mortgage, $16k for home equity, I'll knock $1k off in principle by December) in mortgage and home equity loans. Unfortunately, the appraisal came back $24k less than the house had appraised for two years ago, which means at 80% the most I can refinance is $108k, leaving me with $14k I need to bring to closing. By cutting back to minimum payments on credit cards I can probably have $4-5k cash by closing (currently set for the 12th of December, if I don't have to make the mortgage payment due by the 15th that'll give me another $1k). From what I can tell, my options are cashing out a 401k which currently has a value of $16k or putting the remaining balance on credit card (at a 29.9% interest rate, which is why I was trying to get that card fully paid off in the next few months). Since the mortgage and home equity loan were taken at different times, my refinance is apparently considered a 'cash out refinance' so I can't do PMI, which is why I can't roll the additional costs into the mortgage. Once the refinance is done, I'll have cut my mortgage expenses by $4-600/month. I'm currently leaning towards nuking the 401k, I can't take a loan against it because it's through a former employer, based on my reading of the rules, I know they'll take 20% off the top for taxes plus I'll have to pay another 10% penalty, which will leave me with fairly close to the amount I need for closing. Any other options anyone sees? uh, shouldn't you both be bringing cash to the close to make up the difference? I would not cash out a 401k, it will cost you a buttload in taxes and it's never a good idea... don't chase bad money with good. If you can't sell it for what it will appraise for look to a short sale unless you think bringing in money will get you more than you paid in. The house belongs to both of you work out a deal and make sure they know what's happening. Open communication; i don't know why it's only your responsibility since the house belongs to both of you... Division of assets in the divorce - I got the house, mortgage, and credit card debts, my ex got a lump sum of money from cashing out a life insurance policy. I have no desire to give up the house, I'd still owe the bank the difference in a short sale, but then I'd be in the position of having to move and probably paying more in rent than I'd be paying in a mortgage after the refinance. I currently have payments of $1200/month for mortgage and tax escrow (mortgage and home equity combined), I'm looking at cutting that to around $720/month. I can't afford another hit to my credit score, my current vehicle is at 262k miles and almost 16 years old and the engine needs a complete overhaul, so in a few months I'll need to look at a newer vehicle (not new, just newer). I'm trying to figure out if I have a third option between cashing out the 401k or putting the additional amount on my credit card. I'm within a few months of paying off my high interest credit card (will be delayed by making minimum payments this month and next to save cash for refinancing), at which point I plan to focus all of my attention on paying the other one off within two years. With both cards paid off and the mortgage reduced, I'm looking at nearly $2k/month difference in my monthly disposable income, most of which will go to savings/investments. Anything left over from cashing out the 401k will go into reducing credit card debt, with the expectation that I'll probably need another $1-2k by April for taxes, which I can easily manage. Oh, I keep getting "balance transfer" checks from the high interest credit card company, usually for 0-2.9% for the first 12-24 months, not sure if I can use those for refinancing.
|
|
That 16k in the 401k will net you about half that after taxes and penalties. That can be a real kick in the shorts.
Is it possible to pick up side-work or extra hours? ETA: Oh, and you apparently got all the liabilities and she got the life insurance cash value? Your attorney didn't do you any favors. -shooter |
|
What some people don't realize is there are some circumstances that you can pull from your 401K without penalty.
So you might still have to pay taxes on it, but you should be able to avoid the penalty. I suggest talking to a good CPA about this. I wiped out a 401K last year to pay for $30,000 in medical bills for the wife. With everything documented we paid no tax or penalty on the 401K funds. I know there are other reasons that allow you to use 401K money, such as buying a home, avoiding foreclosure, and medical expenses. Just another avenue to explore. Perhaps you could roll your old 401K into your current 401K and take a loan from that? Just an idea. Good Luck. |