What are options for mobile home buyers who can't afford a 20% down payment?

Assuming you can afford (and qualify for) high monthly mortgage payments and have an excellent credit history, you should be able to find a low (10-15%) down payment loan. However, you may have to pay a higher interest rate and loan fees (points) than someone making a larger down payment.

Can I tap into my IRA or 401(k) plan for down payment money?

Under the 1997 Taxpayer Relief Act, first-time homebuyers can withdraw up to $10,000 penalty free from an individual retirement account (IRA) for a down payment to purchase a principal residence. This $10,000 is a lifetime limit. The law defines a first-time homeowner as someone who hasn't owned a house for the past two years. If a couple is buying a home, both must be first-time homeowners. Ask your tax accountant for more information, or check IRS rules at www.irs.gov.


Another source of down payment money is a loan against your 401(k) plan. Ask your employer or plan administrator if your plan allows for loans. If it does, the maximum loan amount under the law is the one-half of your interest in the plan or $50,000, whichever is less. Other conditions, including the maximum term, the minimum loan amount, the interest rate and applicable loan fees, are set by your employer. Any loan must be repaid in a "reasonable amount of time," although the Tax Code doesn't define reasonable. Be sure to find out what happens if you leave your job before fully repaying a loan from your 401(k) plan. If a loan becomes due immediately upon your departure, income tax penalties may apply to the outstanding balance.

You've finally found the Manufactured home of your dreams. It's big and beautiful and perfect for your situation but there's just one thing standing between you and your new house: The down payment.

Many manufactured home buyers today opt to use funds from their employer’s 401(K) program to come up with the down payment on a house. Ordinarily, you can't take money from your 401(K) plan unless you retire, leave the company or become disabled, but many company plans permit certain “hardship withdrawals” when there is an immediate and heavy financial need, including the purchase of the employee's principal residence.

The drawback to a hardship withdrawal is that you will pay taxes and penalties on the amount withdrawn from your plan, which often must be paid in the year of withdrawal. And while hardship withdrawals are allowed by law, your employer is not required to provide them in your plan. Check with your employer’s human resources department if you're not sure if your 401(K) plan allows hardship withdrawal.

Another approach may be to borrow against your 401(K) – often as much as 50 percent of your account balance. You pay interest on the loan, but the interest goes back into your account. The money you receive is not taxable as long it is paid back and plans can give you anywhere from five to 30 years to pay back your loan.

There are risks involved in borrowing from your 401(K). If you lose your job or leave your employer, you must pay back the loan in full within a short period, sometimes as little as 60 days. If the money is not paid back in that time, it is considered a withdrawal from your plan and subjected to the same taxes and penalties. And while 401(K) accounts can usually be rolled over into a new employer’s 401K without penalties, loans from a 401K cannot be rolled over.

In addition, because the funds withdrawn from your account are no longer earning compound interest, your account will be smaller when you retire. And you’ll be replacing pretax money with after-tax money.

Some lenders will count the money you borrowed from your 401(K) as an additional debt that will go along with your car payments, student loans and credit cards. While it may seem unfair since you are borrowing your own money, most lenders view it as a payment obligation that affects your debt-to-income ratio in qualifying for a home loan. It may be a factor in whether you decide to make a hardship withdrawal from your 401(K) and pay tax penalties or borrow against it.

Now that we have mentioned the shortfalls in borrowing from your 401K, let's look at some of the positives. Home Ownership is the American dream and can be replaced by nothing that we know of. Owning your own home, based on the history of the U.S. housing market,  can make up for any shortfalls in borrowing from the 401k with year after year rises in equity to your property.

Borrowing from the 401k in an an employee's earlier years can be replaced by making additional payments to the 401k plan. In the meantime, your family has grown in the security and stability that only home ownership can provide.

Sometimes the need is now. We recomend that you evaluate your situation carefully. We here at MobileHomeLoan.biz will help you in any way we can. If borrowing from your 401k is not the answer, then you may want to look at a new manufactured home. With good credit, good income and the right piece of land or mobile home park, MobileHomeLoan.biz has zero down payment programs. They are sometimes, especially in a park, a bit more difficult to qualify for...but not impossible.

To see an instructional video on Home Ownership, including Nola (notice of loan approval) click here.           

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