When it comes to making a move from one house to another, the number one challenge we find our clients facing is the inability to make a contingency offer on the new house. For over two years now, we have yet to see one new purchase contract come in “subject to the sale of your existing home”. Given that, most people don’t think it’s possible to make that transition because they lack the down payment for the new home. In addition, you must qualify for both your existing and new house payments. There are some strategies where it is possible to remove your existing house payment from the qualification process, but these options generally cost a little bit more money. What we find most often is that we can use one of three strategies to temporarily come up with the down payment until you sell your existing home.
1) The first option is to take a loan out on a 401(k). Generally, you can get up to 50% of your vested balance in your account or up to a maximum of $50,000 with no tax consequence. They set you up on monthly payments that come out of your paycheck. You can repay it at any time with no prepayment penalty.
2) The second option would be to take a margin loan on a brokerage account that you have that is not tax deferred. This is a very inexpensive way to get some cash quickly.
3) The third option is to take out a home equity line of credit on your existing home. With all these options, the loan would be repaid once your existing home sells.
What to Do Now That Student Loans Are Due Again
If you have a student loan, you may have forgotten it even existed. After a five-year hiatus on student loan payments, the Trump administration will resume the collection of these payments as of May 1, 2025. The pause was borne out of the COVID era, and it was put in place to offer relief shortly after Biden became president. Currently, 42 million Americans have student loans, and more than 5 million borrowers are currently in default and this total could swell in the coming months. Millions of borrowers who signed up for the Biden administration’s new repayment plan, known as SAVE, were caught in limbo after the GOP led lawsuits that managed to get the plan blocked in the summer of last year. Many of those borrowers will now have to switch out of a Biden-era payment pause and into another repayment plan that will likely spike their monthly bill.
If you are unsure about what your payment options are or are unable to make the payments, it’s best to call the loan servicer to see what available options there are. The federal government has extraordinary collection powers on its student loans, and it can seize borrowers’ tax refunds, paychecks, Social Security retirement and disability benefits. Therefore, ignoring the problem is not a good strategy because in addition to these extraordinary collection powers, delinquent student loans will crash your credit score.
If you are considering making a move or have questions about your credit due to student loan debt, please give us a call or schedule a consultation with us so we can work through these various scenarios with you.
