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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: TimmyTightWad on June 23, 2015, 09:10:33 AM

Title: Any formulas for when to take a 401k loan in order to avoid PMI?
Post by: TimmyTightWad on June 23, 2015, 09:10:33 AM
I did a google search but most of the articles high light the obvious trade offs and benefits. The biggest risk seems to be the risk of either losing my current job or finding a dream job before I complete paying the 401k loan back. Just wondering if anyone has done this or considered it?
Title: Re: Any formulas for when to take a 401k loan in order to avoid PMI?
Post by: forummm on June 23, 2015, 09:13:14 AM
There was an epic nerd-off about 401k loan math. Not exactly the same question though. Some responses may be beneficial.

http://forum.mrmoneymustache.com/investor-alley/the-exact-math-behind-using-401k-loan-to-pay-down-debt/
Title: Re: Any formulas for when to take a 401k loan in order to avoid PMI?
Post by: TimmyTightWad on June 23, 2015, 09:28:20 AM
There was an epic nerd-off about 401k loan math. Not exactly the same question though. Some responses may be beneficial.

http://forum.mrmoneymustache.com/investor-alley/the-exact-math-behind-using-401k-loan-to-pay-down-debt/

wow thanks.
Title: Re: Any formulas for when to take a 401k loan in order to avoid PMI?
Post by: frugaliknowit on June 23, 2015, 10:09:42 AM
Have you considered a "piggy back" instead?
Title: Re: Any formulas for when to take a 401k loan in order to avoid PMI?
Post by: TimmyTightWad on June 23, 2015, 10:41:21 AM
Have you considered a "piggy back" instead?

yes but lenders always counter that it's cheaper to just pay PMI vs. getting the 2nd mortgage at a higher interest rate. They say that for obvious reasons but I figure if I pursue that they'd just jack up the offered interest rate on the piggyback portion ....basically to force me to take the PMI option.
Title: Re: Any formulas for when to take a 401k loan in order to avoid PMI?
Post by: forummm on June 23, 2015, 10:52:13 AM
Have you considered a "piggy back" instead?

yes but lenders always counter that it's cheaper to just pay PMI vs. getting the 2nd mortgage at a higher interest rate. They say that for obvious reasons but I figure if I pursue that they'd just jack up the offered interest rate on the piggyback portion ....basically to force me to take the PMI option.

Do you have to get the piggy from the same lender as the primary?

Can't you shop around the package? Lenders should only need your credit score to give you a quote contingent on your credit actually being good.

How quickly are you going to pay off the 2nd loan (whether it's from a bank or yourself)?
Title: Re: Any formulas for when to take a 401k loan in order to avoid PMI?
Post by: TimmyTightWad on June 23, 2015, 12:14:21 PM

Quote
Do you have to get the piggy from the same lender as the primary?

Can't you shop around the package?
How quickly are you going to pay off the 2nd loan (whether it's from a bank or yourself)?

I guess this is an option, but then that piggyback loan gets calculated into qualification for the primary loan. Also I'm not sure exactly how to say get a loan for 10% of the home price....what is the collateral in that case? I read about ppl getting HELOC for this, but I don't quite understand how you get an equity loan on a home you haven't even purchased yet. I need to research this thoroughly because I don't trust asking lenders these kind of questions .

Another option may be to get a low interest loan from a bank or credit union without specifying what it's for or perhaps some kind of 0% credit card offer. Admittedly these two sound like reaches though.
Title: Re: Any formulas for when to take a 401k loan in order to avoid PMI?
Post by: forummm on June 23, 2015, 12:29:17 PM

Quote
Do you have to get the piggy from the same lender as the primary?

Can't you shop around the package?
How quickly are you going to pay off the 2nd loan (whether it's from a bank or yourself)?

I guess this is an option, but then that piggyback loan gets calculated into qualification for the primary loan. Also I'm not sure exactly how to say get a loan for 10% of the home price....what is the collateral in that case? I read about ppl getting HELOC for this, but I don't quite understand how you get an equity loan on a home you haven't even purchased yet. I need to research this thoroughly because I don't trust asking lenders these kind of questions .

Another option may be to get a low interest loan from a bank or credit union without specifying what it's for or perhaps some kind of 0% credit card offer. Admittedly these two sound like reaches though.

Any loan you have will get counted in for qualification--even the bank or credit union or CC loan. Is your income or credit so marginal WRT the intended price range that you wouldn't be able to qualify for the house with a 2nd loan? Perhaps you're buying too much house.
Title: Re: Any formulas for when to take a 401k loan in order to avoid PMI?
Post by: TimmyTightWad on June 23, 2015, 01:03:46 PM
No, I'm targeting about 100-150K+ less than what i'm qualified for. I want total payment (mortgage +tax+insurance+pmi/second loan) to be 20% or less of take home income.
Title: Re: Any formulas for when to take a 401k loan in order to avoid PMI?
Post by: forummm on June 23, 2015, 01:25:51 PM
No, I'm targeting about 100-150K+ less than what i'm qualified for. I want total payment (mortgage +tax+insurance+pmi/second loan) to be 20% or less of take home income.

What you're qualified for isn't a great metric. With my 5-figure income, I qualified for a house about 4 times more expensive than what I actually bought. It was a great decision to buy this one instead. I love it every month when the mortgage is due. We've saved a ton of money because of that decision.