7 Ways to Eliminate Pet Odors Before Listing

You might be sharing your home with a furry friend or two, but those cute critters have a tendency of leaving foul odors behind. While you might not notice these smells that much, buyers will. You can be sure that any bad odors from your pets will be a huge turnoff for buyers who may otherwise have been inclined to put in an offer on your home.

Here are some ways to help you get rid of those awful scents before the first prospective buyer walks through your front door.

1. Open the Windows

One of the first things you should do to eliminate odors is open up all windows of the home and leave them open for a few hours. It only takes a minute to do and is highly effective. Letting all that foul odor out while allowing fresh air in can help circulate all those smells and refresh your indoor air. Try to make it a point of airing out your home at least once a week.

2. Wash Your Window Drapes

Bad smells have a knack for lingering on softer surfaces like fabric. Take down all those drapes hanging by your windows and throw them in the wash to rid them of any pet odors and refresh them with a renewed scent.

3. Steam Clean Your Upholstery

Not only should your drapes be laundered, so should your upholstery. Pet odors can easily linger on the surface of your sofas and chairs, especially if your furry friend has a tendency to lay on them.

Simply spraying them with cleaning solution isn’t going to do the thorough job that needs to be done. Instead, you should consider having your upholstery steam cleaned – either done yourself or by a professional – in order to eliminate any microscopic smells that surface cleaning won’t remove.

4. Shampoo Your Carpets

If you’ve got any wall-to-wall carpeting in your home, you may need to have it shampooed. But before you take this step, try deodorizing the carpeting by sprinkling some baking soda all over it and let it sit for a few hours to trap any odors. After that, vacuum it all up to get rid of the baking soda and the trapped smells along with it.

If this doesn’t do the trick, then you may have to deep-clean the carpets in the form of shampooing. You can either do this yourself by renting a carpet shampooer from your local home improvement store or hire the pros to do it for you. Shampooing your carpets can be tricky because you don’t want to use too much soap, which will make it hard to eliminate all the suds. In addition, you want to make sure the carpet is entirely dry before replacing any furniture on it.

You might also want to try using a HEPA vacuum, which is designed to trap minuscule particles that the naked eye can’t see. The filters in HEPA vacuums can remove years’ worth of pet dander and odor build-up in carpeting. Again, you can rent this piece of equipment to get the job done.

5. Clean Your Pets Toys

The surface of your pet’s toys contain all sorts of odor-producing particles after being chewed on all day long, so be sure to thoroughly wash these items as part of your overall strategy to eliminate pet odors from your home. And don’t forget to clean and wash your pet’s bowls, bed, cage, and litter box/pee pads too.

6. Change Your HEPA Filters

Ideally, your home should be outfitted with a HEPA air filtration system which is designed to traps particles like pet dander, dust mites, pollen, and even cigarette smoke. Not only are these highly effective in eliminating odors, they’re also fantastic for improving the overall air quality in a home. This makes for a much safer and pleasant interior.

That said, the filters on HEPA air filtration systems need to be replaced every so often. These filters can become inundated with debris after working so hard to clean the air. Regularly changing them can ensure that they are working properly to continue eliminating odors from your home, including those that come from your beloved pet. 

7. Repaint Your Walls

Sealing your walls can help get rid of any unwanted pet smells that are lingering around on these surfaces. You can easily seal your walls by either applying a sealant product appropriate for drywall, but also by giving your walls a fresh coat of paint. Not only will you be able to effectively rid your home of these unpleasant smells, but you’ll also be giving your home a facelift at the same time.

The Bottom Line

Before you list, it’s imperative that you take steps to prep your home for visiting buyers, and one of the tasks on your list is to ensure your home has a pleasant smell. While you don’t want to overpower your home’s interior with strong smells in an effort to mask any odors from your pets, you do want to neutral the smell and leave it smelling clean. If you’ve got a pet as part of the family, keep these tips in mind to keep any bad odors at bay.

What’s the Difference Between Mortgage “Term” Vs. “Amortization”?

When it comes time to buy a home, one of the first things you’ll have to do is shop around for a mortgage. When doing so, you’ll quickly realize that there are plenty of different types of mortgages to choose from. It’s obviously important to determine how each type of mortgage differs in order to make the right choice, but it’s also helpful to understand how a mortgage ‘term’ and ‘amortization’ differ from each other.

In fact, terms and amortizations are often the sources of great confusion among buyers, many of whom aren’t fully aware of their distinctions. So, what exactly is the difference between a mortgage term versus amortization?

Mortgage Term

The mortgage term refers to the length of time that you are under contract with a mortgage lender. During this time, you’ll also be committed to the interest rate that you locked into when you first entered the contract, as well as any conditions and terms that come with the mortgage.

The majority of mortgage terms can be as short as six months, though the most common term length is typically five years. When your term has elapsed, the mortgage can be renewed for the loan amount left to be repaid with your current lender, usually with the same terms and conditions. However, a new interest rate will be applied based on the current market.

Essentially, the term just represents the time frame within which you are committed to your lender. Once the term is up, you can either renew with your current lender or switch to another if you are able to find a lower rate and better conditions. At the end of the day, the mortgage term is what your interest rate is based on.

Mortgage Amortization

The mortgage amortization refers to the length of time that you’ll have to repay the loan amount in full. It begins when you first make your home purchase and take out your mortgage. The more common amortization period among American homebuyers is 25 years, which means the home loan would be fully repaid after 25 years based on the monthly payment amount and interest rate.

Obviously, the longer the amortization period, the lower your monthly mortgage payments will be simply because you have more time to pay back your loan. However, the mortgage will cost you more over the long run because you’ll be paying more in interest until the loan amount is fully paid off.

For instance, let’s say you have a mortgage amount of $200,000 with a 4% interest rate and 5-year term. With a 25-year amortization period, you’ll end up paying $116,656 in interest over the life of the mortgage, compared to $66,256 over a 15-year amortization period. However, the former would offer you a smaller monthly mortgage payment of $1,055.67, compared to $1,479.38 for the latter.

Borrowers who have the funds available to comfortably cover larger monthly payments may opt for shorter amortization periods in order to pay off their mortgages faster and save tens of thousands of dollars in interest. However, those on a tighter budget may want a longer amortization period in order to effectively reduce their monthly debt payment obligations.

While the term of your mortgage is the time frame that your interest rate is based on, the mortgage amortization impacts your monthly mortgage payments.

The Bottom Line

While the mortgage term and amortization are closely related, they are certainly different. Understanding the difference between the two can help you identify what type of interest rate you’d get and how much your mortgage will cost you overall. Based on these figures, you’ll be better able to pick a mortgage with a term and amortization period that makes financial sense for you.

Things Guests Notice About Your House Right Away

It’s always nice to have people come to visit, but being a host typically involves a little tidying up. But getting your home ready for guests might involve a little more than just clearing the shoes out of the front entrance or getting that pile of dishes done. Your guests will notice a lot more than what you may think.

The Smell

You may have gone “nose blind” to the scent in your home because you’ve become accustomed to it, but that smell will be noticeable to your guests once they walk through the front door – whether it’s pleasant or not. Regardless of whether the scent is coming from burning incense all day or last night’s fried fish dinner, you can bet that anyone who comes over will notice it right away.

To make sure you don’t turn anyone off, try to neutralize the odor in your home. Even smells that you might enjoy could be off-putting to others. Eliminate the source of the odors, then take some steps to improve the smell of your home. Open the windows to let some fresh air in, light a candle, or lay out a few vases of freshly-cut flowers to infuse the interior air with a waft of pleasant smells.

Counter Clutter

Your front entrance and floors may be tidy and clean, but what about other areas of your home? Table and counter surfaces are notorious for accumulating clutter which doesn’t exactly do much for the look and feel of your home. All those small appliances, cell phone chargers, or piled-up mail can create unsightly clutter that guests won’t be too impressed with.

In order to keep clutter at bay, make it a point of staying on top of the tidying. Toss out items you don’t need, and put things away in their proper places. Keep a few decorative boxes or baskets handy to store little knick-knacks that tend to linger on surfaces for longer than they really should.

Poor Lighting

One of the most underestimated and neglected components of home decor is lighting. Homeowners often pay plenty of attention to color schemes, furniture, finishes, hardware, and artwork, but it’s not uncommon for them to forget about the lighting that is needed to illuminate such components. Inadequate lighting can make a room feel dull, dingy, or even off-balance. 

Every room in the house requires its own particular type of lighting. For instance, the kitchen does well with pot lights, pendant lamps, and under-cabinet lighting, while the living room should ideally have recessed lights on dimmer switches, table lamps, and floor lamps. Proper lighting can make a huge difference in your home’s atmosphere, which your guests will certainly notice.

Bathroom Amenities

Anyone who uses your bathroom will definitely notice if you’re missing any necessities. Toilet paper, tissues, and clean towels, for instance, should always be well-stocked in any bathroom that is used on a regular basis. And if you’re hosting any overnighters, the list of amenities will grow to include things such as bath towels, shampoo and conditioner, bath soap, and maybe even a robe or hair dryer.

Before you have guests over, make sure your bathroom is equipped with everything they’ll need to enjoy a comfortable stay.

Dirty Bathroom

While we’re on the subject of bathrooms, the level of cleanliness should be mentioned. There’s nothing more disgusting than a filthy bathroom. All surfaces – including the sink, toilet, bathtub, and floors – should be wiped down before your first guest arrives.

It goes without saying that your bathroom should be kept clean at all times, whether or not you’ve got visitors. But if not for yourself, clean for your guests, because they will likely form an opinion about your level of sanitation if you don’t.

Wall Art

Whatever is hanging on your walls will grab your guests’ attention. You might not necessarily care too much about what people think about your taste in wall art, but you should know that people will definitely notice it and develop an opinion of it. It’s common for people to judge homeowners based on their choice in artwork, so if you want to make a good impression, then you may want to take a closer look at what’s hanging on your walls.

Plants and Fresh Flowers

Speaking of greenery, people have a tendency of noticing the presence – or lack thereof – of plants and flowers in a home. Generally speaking, fresh greenery evokes a positive vibe thanks to the colors and scents that it gives off. Plants and flowers have a knack for livening up indoor spaces, especially those that are lacking in decor. Just be sure to keep your greens well-watered so they’re not wilted.

Messy Fridge

If you’ve got good friends coming over who are accustomed to fetching their own drinks or snacks, then you’ll want to make sure your fridge is clean. Any caked-on spills on the shelves or rotting food products that are giving off a nasty odor should be eliminated right away. All it takes is a few minutes to go through the items in the fridge, remove whatever has stayed past its shelf life, and give the shelves a good wipe.

While you’re at it, make sure your fridge – as well as your pantry and/or bar – is stocked with everything you think your guests will need to fill their bellies and quench their thirst. One of the first things hosts usually do is offer a drink or refreshment, so be sure to have what you need to please your guests.

The Bottom Line

If making a good impression on your guests matters to you, then perhaps you might want to take a closer look at what they really notice and make any necessary changes.  Don’t bother with time-consuming tasks that guests likely won’t even notice, like vacuuming under the sofa or reorganizing your linen closet. Instead, knowing what visitors are really paying attention to can help you focus on elements of your home that really matter when it comes to impressing your guests.

6 Signs of a Seller’s Markets

Whether you’re a buyer or seller, knowing what type of market you’re currently in will make a big difference in your approach. Obviously, a seller’s market is a good thing for homeowners who are thinking of listing their homes for sale. Buyers, on the other hand, need to go into their homebuying strategy with a little more caution and ensure they’re adequately supported by an experienced real estate team.

Regardless of what side of the real estate coin you happen to be on, here are some tell-tale signs that you’re smack dab in the middle of a seller’s market.

1. Inventory is Tight

Supply and demand play a key role in determining whether or not the market favors buyers or sellers. If supply is short relative to the demand, that’s typically a sign of a seller’s market. The fewer homes on the market, the more competitive it will be for buyers, which means sellers are typically in the driver’s seat.

2. Multiple Offers Are Common

A sure sign of a seller’s market is the frequency of bidding wars, whereby several buyers submit their offers on the same property at the same time. In a multiple offer situation, sellers are often able to get well over the asking price as buyers compete against each other to come out the winning bidder. It’s not uncommon for buyers to find themselves in several bidding wars before finally realizing a successful deal.

If multiple offer scenarios happen more frequently, you can safely assume that the market is in favor of sellers. And as the frequency of bidding wars increases, so do the sale prices. As such, you can expect to pay more for homes in a seller’s market, which brings us to our next point.

3. Prices Are on the Rise

As the demand for homes increases (with a subsequent decrease in supply), so does the price of real estate. It’s the simple law of supply and demand at play that dictates which direction housing prices will go. And in a seller’s market, housing prices and demand tend to follow the same direction.

California’s housing prices have been on a steep incline over the recent past as the perfect storm of high demand and low inventory has defined markets across the Golden State. As such, California is certainly experiencing a strong seller’s market with no evidence showing that it’s running out of steam anytime soon.

4. Sale Prices Exceed Listing Prices

Not only do prices tend to rise in a seller’s market, they can actually push past the actual listing prices. This is typical in a bidding war, as several buyers are trying to outbid each other.

5. Low DOM (Days On the Market)

A good way to identify a seller’s market is by the amount of time it takes for listings to sell. Real estate professionals can access data that tells them the number of days a listing sat on the market before being sold. The fewer the number of days on the market, the more the market is siding with sellers.

It’s not uncommon for listings in a seller’s market to be sold the same day they were listed. Given this information, buyers may often have to make a quick decision on a hot property if homes are being snatched up as quickly as they are listed.

6. Sellers Don’t Offer Incentives

In a buyer’s or transitional market, sellers may often consider offering buyers incentives as a means of encouraging offers, especially if the listings have been lingering on the market. Sellers can offer all sorts of different incentives, such as offering to cover closing costs, throwing in the furniture and appliances, or even offering cash back to pay for any requested repairs.

But in a seller’s market, incentives are rare, if they even exist at all. There’s no incentive for sellers to sweeten the deal if buyers are flocking to their listings. As a seller’s market heats up, incentives are virtually nonexistent.

The Bottom Line

Homeowners obviously want to get the most money when they sell, and a seller’s market is definitely the best and easiest time to do that. In this market, sellers have the advantage of being a little more selective in the offers that come through and can be more demanding with their sale price and terms of their offer. On the other hand, buyers need to be well-prepared when faced with stiff competition from other buyers, as is customary in a seller’s market.

Right now, it’s a great time to be a seller in California. All the signs of a seller’s market are there and have been for quite some time. Whether you’re buying or selling in this particular market, be sure to team up with a seasoned real estate professional who can help you make the most of the housing climate we’re in today.

7 Reasons Your Credit Score Dropped

Your credit score is a critical component of your financial health, so you want to make sure it’s as high as it can be. If it’s in bad shape, you’ll find it difficult to get approved for a mortgage, auto loan, and other loans on credit.

But if you think all is well with your finances, it can be rather disheartening to find out that your credit score dropped from one month to the next. The question is, how and why would this happen?

There are plenty of reasons, including the following.

1. Your Payment is Over 30 Days Late

One of the biggest reasons why a credit score plummets is because of missed a payment that is at least 30 days overdue. If you were a couple of days late on a payment, you won’t notice a difference in your credit score. But once it’s past due by at least 30 days, it will be reported to the credit bureaus. When the credit bureaus get wind of your overdue payment, your credit score will suffer.

Your payment history accounts for 35% of your credit score, so you can be sure that a missed payment will have a major impact. Even just one missed payment can make a big difference. Not only will your credit be dinged, you’ll also be stuck with a late payment fee from the creditor you owe.

2. You Maxed Out Your Credit Card

It’s recommended that you stay well under your credit limit on your credit card if you don’t want your credit score to be affected. Your credit utilization plays a big role in the health of your credit score, so you don’t want to spend so much on your credit card that you have little or no available credit left.

If you make a large purchase on your credit card one month, your lender might think that you depend too much on your credit to make purchases, which they’ll view unfavorably. As such, you might notice a drop in your score even if you pay off the entire balance in full and on time.

3. You Applied For a Few New Credit Accounts

Too many new accounts opened within a short period of time can be a bad thing for your credit score. Every time you apply for another credit account, the creditor will pull a “hard inquiry” on your credit to verify your financial health and check out your payment history.

Creditors aren’t usually in the habit of extending credit to those with a bad track record of late or missed payments, so checking your credit is a crucial way for them to make sure you’re a low-risk borrower.

But every time they check your credit, your credit score can drop a few points. And the more accounts you open, the more inquiries will be made, which means your credit can be significantly affected as all those hard inquiries add up.

4. You Recently Closed an Old Account

Old credit can actually be beneficial for your credit score, even if you don’t use it. Financial advisors will often recommend keeping old credit accounts open in an effort to improve credit scores, so closing them can actually have the opposite effect on your score. If you’ve recently closed an old account, your credit score might drop.

5. You Paid Off One of Your Loans

Paying down your debt is typically viewed as a positive thing for a person’s financial health, but sometimes paying off a loan can be a bad thing for your credit score initially. After your loan has been paid off and the account has been closed, you’ll have one less account on your books, which can impact your score.

That’s because having a mix of different types of credit helps establish and maintain a sound credit history, which is therefore good for your score. If you take one account out of the mix, your credit score could decrease.

6. Your Name is on Someone Else’s Delinquent Account

If you co-signed for someone else’s loan, you take on a huge risk if they happen to default on their payments. Some people may not be able to get approved for a loan on their own without someone else’s help, which is why they would need a co-signer to get the loan they require.

If the borrower happens to be very good at making their payments in full and on time each month, your credit score can actually get a boost. But the opposite is also true: if the individual is delinquent on the loan, your credit score can suffer.

7. There’s a Mistake on Your Credit Report

Sometimes a drop in your credit score might not necessarily be your fault. It’s possible that there’s a mistake on your credit report that’s pulling your score down. To find out for sure, you’d have to pull your report (which you can do for free once a year) and review it to see if there are any errors.

If you find any, that could explain the sudden drop in your score. In that case, you should have it investigated and resolved to help bring your score back up to where it should be.

The Bottom Line

There are all sorts of reasons why you may have noticed a drop in your credit score. The key is to identify the exact reason why your score changed for the worse and take steps to rectify it. You can also get in touch with a financial advisor or credit counselor who can guide you on the path to a solid credit score.

INFOGRAPHIC: Housing Outlook For 2018

Self-Employed? Here’s How to Boost the Odds of Mortgage Approval

When it comes to getting a mortgage, borrowers are typically asked to present several pieces of documentation. Some of the more important paperwork includes a letter of employment from your employer as well as statements of income verifying how much you make on a regular basis.

But if you’re self-employed, you don’t have an employer, nor do you collect any paystubs that show your regular income. This can be a problem in terms of applying for a mortgage. Some lenders might be worried that your income isn’t steady enough to allow you to handle monthly mortgage payments. Others just might not want the hassle of dealing with more documentation that’s often required to scope out a self-employed individual before approving a home loan.

That said, you don’t have to toss out your dreams of buying a home and getting a mortgage just because you work for yourself. If you are confident that you can handle a mortgage, there are several things you can do to increase the chances of getting approved for a home loan.

Gather a Sizable Down Payment

The more money you have to use as a down payment towards a home purchase, the better your odds of getting approved for a mortgage. That’s because a larger down payment will essentially reduce the amount of money borrowed, which will reduce your loan-to-value ratio (LTV). A lower LTV is perceived as less of a risk to most lenders, thereby increasing the odds of home loan approval.

Not only that, a higher down payment will also afford you with a lower interest rate. While a high LTV doesn’t necessarily mean your mortgage application will be denied, it could make it more difficult to get approved for a home loan at a decent rate.

Show Proof of a Large Savings Account

In addition to a large down payment, a healthy savings account will please lenders and give them some assurance that you have enough money in an emergency fund to prevent any missed payments should you have a bad month or two with your business. The more money you have saved up for a rainy day, the better your chances of an approved home loan application.

Work on Your Credit Score

Your credit score plays a key role in your mortgage application. A high score shows lenders that you’re capable of making your debt payments on time and in full each month and are serious and responsible about paying down your debt. A lower score, on the other hand, has the opposite effect.

If your score could use some improvement, take the time to increase it before applying for a mortgage. Don’t miss any bill payments, minimize the amount you spend on your credit card, and avoid taking out new credit accounts. Improving your score will make you a good candidate for mortgage approval in the eyes of your lender, and it may also help you get a lower interest rate too.

Have All Your Business-Related Information Readily Available

As a self-employed individual, you’ll have to come up with plenty of documentation to prove you’re financially sound. Typically, lenders want the following documents from applicants who run their own businesses:

  • Minimum of two years’ worth of tax returns (including all associated schedules)
  • Profit and loss statements
  • Balance sheets

The more documentation associated with your business’s income that you can supply, the better your chances of qualifying for a mortgage.

Don’t Write Off Too Much

As a business owner, you probably try to write off as much as you can to save money at tax time. However, it’s important to keep in mind that deducting from your taxes lowers your qualifying net income, which can therefore make it more challenging to get approved for a home loan.

Lenders will be looking at your net income over the past two years, and if you deduct too much from your gross income, your debt-to-income ratio (DTI) will suffer. While it’s beneficial to save some money by deducting business expenses from your taxes, you don’t want to write off too much to the point that your income won’t appear adequate enough to sustain a mortgage.

Pay Down as Much Debt as Possible

Too much debt will throw off your debt-to-income ratio and will make you seem like a risky borrower to lenders. The more you’re able to pay down your debt, the lower your DTI will be and the better your odds of getting approved for a mortgage. Not only that, but making your mortgage payments will be easier for you if you’re not drowning in debt.

Have Separate Personal and Business Accounts

Lenders will have to verify that the money being used for your down payments won’t negatively impact your business’s cash flow. This process of verification can be complicated if the money you use comes from one account that is used for both personal and business purposes. For this reason, it can be helpful if you separate your money into personal versus business accounts to make the process less cumbersome for everyone involved.

Keep Detailed and Up-to-Date Records

You may be required to submit a profit and loss statement, so properly classifying your income and expenses in great detail is very helpful. Maintaining good records can reduce any headaches when it comes time to provide the information your lender requests.

Wait Until You’ve Got a Solid Self-Employment History

It might be worth it to wait a couple of years to apply for a mortgage if you’re just starting a business or if the past few years haven’t been too successful. If you’re able to prove to your lender that your business is on solid ground by showing at least two years of solid self-employment history, you may be able to boost your odds of mortgage approval.

The Bottom Line

Being self-employed might require you to submit a few extra types of paperwork compared to a W-2 wage earner, but that doesn’t mean getting approved for a mortgage should be an impossible feat.

Understand what is required of a self-employed individual well in advance of applying for a mortgage and go into the process prepared. Speak with a mortgage specialist long before you decide to buy a home to find out exactly what you need and what you should do to put yourself in the position for mortgage approval when the time comes to apply.

Using Your 401(K) or IRA For Your Down Payment

If you’re planning to buy a home in the near future, you’ll need some form of down payment to secure a mortgage. The thing is, it can be downright difficult to gather up the funds needed to put a decent-sized down payment towards your home purchase. With housing prices being what they are today – especially in more expensive centers like San Francisco – coming up with a down payment relative to the purchase price is a major feat.

Fortunately, there are various sources of funds that you may be able to tap into besides your savings account. One resource you may want to consider is your 401(K) to access the money needed to use for a down payment. However, you could be penalized for withdrawing these funds early and can lose tax breaks associated with these retirement savings.

The question is, how can you use your saved-up retirement funds for a down payment without being slapped with penalties for doing so?

Take Out a Loan From Your 401(K) For a Down Payment

Your 401(K) account was developed and contributed to for a specific reason: to help you save up enough money to be used in your retirement years. As such, it might not seem to make much sense to tap into this account for other reasons. However, you can still benefit from these savings without compromising your long-term financial goals.

If you take money out of your 401(K) account, you’ll most likely be subject to a 10% early withdrawal penalty fee if you’re under the age of 59.5 years. Not only that, you’ll also need to pay income taxes on that money, which might not seem like withdrawing money from this account would be worth it after all.

However, there are ways for you to use your retirement funds without being penalized. For starters, you may consider borrowing from your 401(K) account rather than actually pulling money out of the account for good.

With this method, any principal and interest that would need to be repaid would go to you, not the bank. In essence, you’re borrowing from yourself and not your lender. You can choose to either pay back the amount in regular installments or in lump sums.

Like a typical loan, you are responsible for making your payments on time and in full in order to avoid any penalty fees or taxes. Given this fact, borrowing against your 401(K) only makes sense if you’re willing and able to handle your designated repayment schedule.

That said, a 401(K) loan may be your best option if you don’t have enough money for a down payment and don’t have any financial support from family members.

When taking out a loan from your 401(K) account, you can borrow as much as $50,000 or half of your account’s value, whichever is less. Any interest associated with the repayment schedule goes straight back into the account, though you are still required to pay it in full.

Roll Your Withdrawal Amount Into Your IRA

Another option you may have when tapping into your retirement funds to come up with a sizable down payment is to roll over the amount of money you need from your 401(K) into an IRA. Done right, doing so will also help you avoid having to pay any penalty fees associated with taking out these funds before you reach retirement age.

By taking the roll-over approach, you’ll be able to take advantage of the same type of exemption that first-timers get when they use money from their IRA accounts to beef up their down payments.

The penalty exemptions associated with an IRA depends on the type of account you’re rolling into:

Roth IRA – You don’t have to worry about being stuck with a 10% early withdrawal fee or tax payments with a Roth IRA. You can take out $10,000 without penalty or tax if you’ve had your Roth IRA for a minimum of 5 years, as long as it’s used for your first home purchase.

Traditional IRA – While you won’t be subject to the 10% early withdrawal penalty fee if you pull out up to $10,000 to be put towards a down payment on your first home, you’ll still have to pay income taxes on the money withdrawn. Also, the money needs to be used within 120 days for a home purchase in order to avoid the 10% penalty.

The major caveat here is that you can’t roll over a 401(K) that’s still with an employer that you’re still working for. Rolling your 401(K) only works on accounts from former employers. Generally speaking, you’re only able to roll over a 401(K) to an IRA after you leave a company.

Once you leave a job, you can take your employer-sponsored 401(K) with you. By rolling it over, you can transfer the balance into another retirement account without having to pay taxes on that amount. In many cases, the best option is to roll the 401(K) into an IRA.

The Bottom Line

Getting some financial help when it comes to building a down payment for a home purchase might be necessary if your savings account is marginal. In this case, your 401(K) and IRA accounts may serve you well.

However, it’s always a good idea to think long and hard before borrowing against your retirement account. Not only do you want to make sure that your retirement savings are ample by the time you reach the Golden Years, you also don’t want to put yourself in the position to be subject to penalties. Be sure to speak with a financial advisor first before making any significant decisions about borrowing from your 401(K).

How to Buy and Sell at the Same Time

Listing your current home for sale while purchasing a new property can be a real challenge if you don’t have all your ducks in a row. Unless the closing dates between the two deals coincide perfectly, there’s always the chance of either carrying two mortgages or being stuck without a place to live until the deal on your new home purchase closes.

To ensure everything runs seamlessly, a few steps should be taken. Here are some factors to consider when buying and selling a home simultaneously.

Understand Your Market

Your real estate agent is a critical ally when entering the real estate market and will help you gain a full understanding of the current market you’re dealing with. Knowing the climate of the market is essential before buying or selling and will help arm you with important information needed to make sound purchasing and selling decisions.

More specifically, it’s crucial to determine whether or not you’re working in a buyer’s or seller’s market, as either will determine how you should approach your purchase and sale tactics. Your strategy will depend on who has the upper hand in the market, and in many centers across California, the power has been with sellers over the recent past.

From a seller’s standpoint, this is good news for you. But as a buyer, you may need to take extra steps to ensure you come out on top when competing against other buyers. One way to do this is to consider a few different properties to put an offer on in case you lose out on a bidding war. That way, you’ll minimize the odds of being left without any options after your current home has sold.

Try to Coordinate Closing Dates

This might sound obvious, but trying your absolute best to coordinate the closing dates between your current home and your new purchase will make things a lot easier for you. The closing date of your current home should ideally come shortly after your new home. Lining up the buying and selling closing dates can be a more realistic feat if you are active in both the buying and selling process at the same time.

For instance, it’s essential to start preparing to purchase a new home while being active in the sales process of your current home. Put yourself in the position to be ready to purchase by keeping your finances in order, ensuring your credit score is in good standing, and speaking with a mortgage specialist to prepare for your new purchase.

Meanwhile, you should also take steps to keep your home clean and clutter-free, and perhaps have your home professionally staged to ensure that it stands out in a positive light to prospective buyers looking in your neighborhood. In the meantime, your real estate agent will be working hard to market your property to make sure it doesn’t take any longer than necessary to find the right buyer.

Make Your Offer Contingent on the Sale of Your Home

You could consider inserting a contingency in your purchase offer that makes the deal conditional upon the sale of your current home. If you happen to find a home to purchase before you sell your existing home, this contingency will give you the chance to find a buyer for your property before the deal on your new home purchase closes. This is usually an option to consider if you feel that you’re much more likely to find a new place a lot quicker than finding a buyer for your existing home.

But while this might sound good in theory, it often does not work out, especially in competitive seller’s markets. Sellers are typically not fond of these types of contingencies as they can drag out deals. In the meantime, sellers may be missing out on other potential buyers that may be interested in buying their home. Speak with your real estate agent first before considering this option.

Consider a Rent-Back Agreement

Aligning both closing dates together is an ideal scenario, but it doesn’t always work out that way. If you happen to sell first without having solidified a deal on a home purchase, you could be left scrambling to find someplace to stay in the meantime.

As a backup plan, consider a rent-back agreement whereby the buyer rents out your existing home to you for a specific time period after you sell. In exchange for allowing you to stay in the home until the closing date of your new home, you pay the buyer rent until you’re finally ready to move into your new place. With this type of arrangement, you won’t have to worry about staying in a hotel, renting another place, or asking family or friends if you can stay at their home until your new place is ready.

Come Up With Financial Backup Plans

A rent-back agreement could be an option if you sell your home before finding a new one. But on the other side of the coin whereby you find and buy a new home before selling your current property, you would be stuck with two homes, carrying a mortgage for each. In this case, you will need to have a financial plan in place.

One of the most common options for buyers is a bridge loan, which is short-term loan that’s used to cover the gap between the purchase of a new home and the sale of an existing property. This can help you avoid holding two full mortgages at the same time, which can easily happen if your existing home doesn’t sell in time for your new home purchase to close. A bridge loan is secured to your current home, and the funds from the loan are put towards a down payment on your next property.

It should be noted that not all lenders offer bridge loans. You will have to speak with your lender to see if a bridge loan is an option for you in the event that your home doesn’t sell before your new purchase closes.

Another popular option to reduce the financial burden of carrying two properties is taking out a home equity line of credit, or HELOC. With this option, your lender agrees to lend a certain amount of money within a specified term, after which that money can be used towards your new home purchase. In this case, the loan is secured against the equity in your home, which is somewhat like having a second mortgage taken out.

However, a HELOC may not be possible if your home is on the market, as most lenders won’t loan out HELOCs in this case.

Whichever option you choose, be sure to speak with a mortgage specialist and your real estate agent about ways to lessen any financial risk and strain associated with buying first before selling.

The Bottom Line

Dealing with the sale of your current home with the purchase of a new property can be a real juggling act. Such a scenario certainly requires plenty of careful planning well in advance of making any decisions. Before engaging in a purchase and sale, you’d be well-advised to team up with a seasoned real estate professional who will be able to guide you in the right direction. Only after sound collaboration with your realtor should any financial decisions be made.