Help/suggestions home purch/retirement loan - divorce

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retireearly
Posts: 116
Joined: Tue Mar 14, 2017 1:51 pm

Help/suggestions home purch/retirement loan - divorce

Post by retireearly » Wed Mar 13, 2019 8:28 am

Could everyone please take a read and let me know if your thoughts (good/bad) on the following. If you don't think it's a good idea, I definitely welcome the reasons, please!

My scenario is that after being together for almost 25 years, since college, my soon to be ex decided she was no longer happy last summer. A quick side note to everyone on this board that thinks this could not happen to you (for when you think about planning, finances, future, etc) please take my advice that it absolutely can. We were the couple that was together all the time for almost 25 years (married 20, two kids) from college to our current age in mid-40's - "seemed" like the perfect family. Sure, we had issues like the next family but next thing I knew, it was over (literally great one day, to divorce the next - to the point I think my soon to be ex had a stroke or something). So, be careful when planning your life and assuming a marriage is infallible - I sure did.

To the issue at hand. I am 45, still living in the family house and it will be on the market any day (it was but came off during negotiations). After the home sells, the equity would be divided and we would each get about 100-125K, depending on final price. The mortgage has about 7 years left with 160K remaining. In the next month, I anticipate some smaller homes will open up in the relatively small footprint I need to stay in for the two kids (I have one 50%, the other about 75%). The dilemma is right now, I cannot qualify for a mortgage for a home at the price point I'm looking at because my debt -to-income is too high since the current mortgage/prop taxes is considered "my debt" and once a second home/prop taxes added, it would push it too high. My ex makes a bit more than I do but I have more in retirement so finances should even out. Hopefully, the finance/retirement issue will be resolved in the next month allowing me to be able to make this move (Just thinking at this point). If I waited for the family home to sell before getting the traditional mortgage (maybe a 10 year), I would have to scramble to either find a home (many gone by then, not much time to sell and buy, then move) or find a rental (not too many available, if any, in the school footprint I need).

At this point, I am considering:
-Taking a 50K loan from my 403B
-Taking a 50K loan from my State deferred comp plan.
-Using about 30K liquid
-Borrow up to 70K from my Roth (no tax hit)

The price point of the home should be around 200K.

Once the current family home sells, with that $100K to $125K (I'm using 100K as the most conservative) I could pay back the Roth in 60 days. If for whatever reason I miss the 60 day window, I will have the 100K at a minimum to "recontribute" to either ROTH (or traditional which suddenly makes more sense) 403B and def'd comp over the next two years. Since both can max out, that is 76K I can contribute in just two years. Also, I can treat the loans as part of my fixed income, so really no different in terms of asset allocation.

My financial background:
-No debt, other than the family home with $160k mort with 400K (conservative) to 430K value.
-403B Tiaa $477K.
-State Def'd comp - $260K
-Roth $137K
-No pension but 13% contribution on 100K salary.


-I really see no downside. People say that you are paying yourself back interest in after-tax dollars but that is not really true since regardless, a mortgage/loan is needed anyone and that money is after-tax. I also have about as secure a job one can have.
-Prime appears to be about 5.5% so I would be paying myself the interest, not a bank
-I can be nimble and flexible (one plan has no fee to borrow, one is $50) which at this point is probably the most important thing.
-No closing costs which will save several thousand.
-Plan to work 10 more years but could extend a few if nec.

Thoughts? Thanks!
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.

bloom2708
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Location: Fargo, ND

Re: Help/suggestions home purch/retirement loan - divorce

Post by bloom2708 » Wed Mar 13, 2019 10:55 am

Very sorry for your situation. No fun.

All of your ideas look like terrible ideas (individually) to me. To do them all seems like a really bad idea.

At this point, I am considering:
-Taking a 50K loan from my 403B - Don't like it - Keeps you out of the market
-Taking a 50K loan from my State deferred comp plan. Don't like it - Keeps you out of the market
-Using about 30K liquid - Fine here - Down payment or many months of rent
-Borrow up to 70K from my Roth (no tax hit) - Terrible idea, you need this money for retirement. How can you re-contribute $70k?

I would rent for 1 year. You just went through something traumatic. Why rush out and buy a home and thrash your retirement?

Will you not qualify for a mortgage? Why not get $40k down and take out a mortgage if you insist on buying?

Just one person's perspective. Don't raid all your future to buy a house. Look at this as a reset. How about a rental with a pool, hot tub, gym? life reset.
Last edited by bloom2708 on Wed Mar 13, 2019 3:28 pm, edited 1 time in total.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words. Whole food, plant based. Bing it.

megabad
Posts: 2501
Joined: Fri Jun 01, 2018 4:00 pm

Re: Help/suggestions home purch/retirement loan - divorce

Post by megabad » Wed Mar 13, 2019 2:17 pm

retireearly wrote:
Wed Mar 13, 2019 8:28 am
At this point, I am considering:
-Taking a 50K loan from my 403B
-Taking a 50K loan from my State deferred comp plan.
-Using about 30K liquid
-Borrow up to 70K from my Roth (no tax hit)

-I really see no downside. People say that you are paying yourself back interest in after-tax dollars but that is not really true since regardless, a mortgage/loan is needed anyone and that money is after-tax. I also have about as secure a job one can have.
-Prime appears to be about 5.5% so I would be paying myself the interest, not a bank
-I can be nimble and flexible (one plan has no fee to borrow, one is $50) which at this point is probably the most important thing.
-No closing costs which will save several thousand.
-Plan to work 10 more years but could extend a few if nec.

Thoughts? Thanks!
Sorry you and the family are going through this.

As a point of clarification, are your numbers above for assets just your numbers or will half go to the spouse in a month?

"state deferred compensation plan" may mean qualified plan so you may be limited to one 50k withdrawal there (not 2 as you indicated). I would make sure you clarify this before enacting this plan.

The loans from the qualified retirement plans will permanently reduce your tax advantaged space. This is likely not a huge deal if you are not maxxing these accounts. However, you will also be out of the market. This may be a good thing or it may be bad.

Removing Roth contributions will have the same type of effect but it will have a much larger impact on reduction tax advantaged space. I don't understand what you mean by "pay back".

Neither are good solutions but the 403b/457/401a loans will probably damage you less in my opinion.

Typically the first question I ask is what is your ex-spouse planning on doing? If spouse is living in school district than there is no pressure or rush for you to find a place. Most male divorcees rent for at least a while in my experience. My recommendation is to wait to finalize home sale until summer (only an extra month) and then you will have several months to find the right home/apartment before school starts (unless kids are in year round school).

Hulu
Posts: 202
Joined: Wed Oct 22, 2014 7:55 pm

Re: Help/suggestions home purch/retirement loan - divorce

Post by Hulu » Wed Mar 13, 2019 2:35 pm

Sorry for your loss. You're going through a lot. You may want to keep the house so that the kids have some continuity. And rent a sepetate studio for when you're w/o kids. Although you have different custody for each kid so maybe just rent an apartment for the three of you.

Either way there should be no serious dating, buying or any other major decision while you are healing. Just chill out and take care of yourself.

Topic Author
retireearly
Posts: 116
Joined: Tue Mar 14, 2017 1:51 pm

Re: Help/suggestions home purch/retirement loan - divorce

Post by retireearly » Wed Mar 13, 2019 3:51 pm

Thanks for responding and kind words.

-Those totals for retirement are just mine. She will end up with a like number...
-I did check with both 403B and State 457 and I could do both 50K from each (unless cust support was not correct).
-In terms of being out of the market, my goal AA is 70/30 so the loan funds would be part of that strategy where I could still have 70% of retirement money in equities. The total borrow is 19% of my retirement so I can easily keep the AA where it needs to be.
-Over the next several years, I would not being maxing out my retirement accts like I/we had done for much of our lives.
-What I mean by "borrow" roth means using the 60 day in and out rule. Even if borrowed 70K and didn't sell the current home in time to replace it, I would not be too worried because once I/we sold, each year I can contribute 38k in Roth (or pre-tax) to 403b & 457. I could still contribute 6K to a ROTH, too, in each year. So, in just two years, I could contribute 88K to retirement plans with money from home sales. I am extremely disciplined, so I am not concerned about getting 100k in home equity and not using it to replace what I borrowed/used.

-Your suggestion to wait is not a bad one and probably the right one financially. I would be in a position to be much more flexible. However, the psychological/behavior side of where I promised the kids we would not have to move more times than necessary (their mom got a year lease, then bought a home few months later, so there's multiple moves there). My situation is a bit different than most of the guys I have talked to since most seem to have 50% custody or much less. Essentially, with 50% for the younger and 75-80% for the older, I am really always on and my home is always needed to be near their schools, activities, friends, etc. That is where the issue comes up. You raise good points though and they are definitely things in my thought process.


megabad wrote:
Wed Mar 13, 2019 2:17 pm
retireearly wrote:
Wed Mar 13, 2019 8:28 am
At this point, I am considering:
-Taking a 50K loan from my 403B
-Taking a 50K loan from my State deferred comp plan.
-Using about 30K liquid
-Borrow up to 70K from my Roth (no tax hit)

-I really see no downside. People say that you are paying yourself back interest in after-tax dollars but that is not really true since regardless, a mortgage/loan is needed anyone and that money is after-tax. I also have about as secure a job one can have.
-Prime appears to be about 5.5% so I would be paying myself the interest, not a bank
-I can be nimble and flexible (one plan has no fee to borrow, one is $50) which at this point is probably the most important thing.
-No closing costs which will save several thousand.
-Plan to work 10 more years but could extend a few if nec.

Thoughts? Thanks!
Sorry you and the family are going through this.

As a point of clarification, are your numbers above for assets just your numbers or will half go to the spouse in a month?

"state deferred compensation plan" may mean qualified plan so you may be limited to one 50k withdrawal there (not 2 as you indicated). I would make sure you clarify this before enacting this plan.

The loans from the qualified retirement plans will permanently reduce your tax advantaged space. This is likely not a huge deal if you are not maxxing these accounts. However, you will also be out of the market. This may be a good thing or it may be bad.

Removing Roth contributions will have the same type of effect but it will have a much larger impact on reduction tax advantaged space. I don't understand what you mean by "pay back".

Neither are good solutions but the 403b/457/401a loans will probably damage you less in my opinion.

Typically the first question I ask is what is your ex-spouse planning on doing? If spouse is living in school district than there is no pressure or rush for you to find a place. Most male divorcees rent for at least a while in my experience. My recommendation is to wait to finalize home sale until summer (only an extra month) and then you will have several months to find the right home/apartment before school starts (unless kids are in year round school).
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.

Topic Author
retireearly
Posts: 116
Joined: Tue Mar 14, 2017 1:51 pm

Re: Help/suggestions home purch/retirement loan - divorce

Post by retireearly » Wed Mar 13, 2019 3:59 pm

Thanks. I appreciate your words and insight.

-I was not close to getting approved for a mort due to debt to income ratio. Current home payment is 1860 (6/7 years left on a 15yr at 2.5%) and prop taxes nearly 16K. A second more modest home and prop taxes even half that pushes the ratio too high! I did get approved for 200K with 130K down, so in theory, I could do the two 403b/457 loans and use liquid. That is a possibility, too.

-Your rental idea is probably the right idea for me, it really is. Maybe I will do some more googling! However, I'm looking at this as a dad, so maybe I'm doing something I would normally warn strongly against. I'm still thinking and was smart enough to post here first, so it's fluid!





bloom2708 wrote:
Wed Mar 13, 2019 10:55 am
Very sorry for your situation. No fun.

All of your ideas look like terrible ideas (individually) to me. To do them all seems like a really bad idea.

At this point, I am considering:
-Taking a 50K loan from my 403B - Don't like it - Keeps you out of the market
-Taking a 50K loan from my State deferred comp plan. Don't like it - Keeps you out of the market
-Using about 30K liquid - Fine here - Down payment or many months of rent
-Borrow up to 70K from my Roth (no tax hit) - Terrible idea, you need this money for retirement. How can you re-contribute $70k?

I would rent for 1 year. You just went through something traumatic. Why rush out and buy a home and thrash your retirement?

Will you not qualify for a mortgage? Why not get $40k down and take out a mortgage if you insist on buying?

Just one person's perspective. Don't raid all your future to buy a house. Look at this as a reset. How about a rental with a pool, hot tub, gym? life reset.
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.

Topic Author
retireearly
Posts: 116
Joined: Tue Mar 14, 2017 1:51 pm

Re: Help/suggestions home purch/retirement loan - divorce

Post by retireearly » Wed Mar 13, 2019 4:04 pm

Hulu wrote:
Wed Mar 13, 2019 2:35 pm
Sorry for your loss. You're going through a lot. You may want to keep the house so that the kids have some continuity. And rent a sepetate studio for when you're w/o kids. Although you have different custody for each kid so maybe just rent an apartment for the three of you.

Either way there should be no serious dating, buying or any other major decision while you are healing. Just chill out and take care of yourself.
Ex already bought another home, definitely could not do a separate studio and keep the house (plus I have one or both of them almost 80% of the time).

I did think about keeping the house and could probably just pull it off but it is way too big for me to maintain on my own (it was tough with two working parents). I am looking forward to a smaller home that we can start off anew, away from some bad memories!

Your advice is great. I am definitely in no shape to date (how the heck do you date in 2019, ha?) and after reading these responses, maybe renting is not so terrible if I can actually find something as long as I frame it well to the kids!
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.

megabad
Posts: 2501
Joined: Fri Jun 01, 2018 4:00 pm

Re: Help/suggestions home purch/retirement loan - divorce

Post by megabad » Wed Mar 13, 2019 4:35 pm

retireearly wrote:
Wed Mar 13, 2019 3:51 pm
However, the psychological/behavior side of where I promised the kids we would not have to move more times than necessary (their mom got a year lease, then bought a home few months later, so there's multiple moves there). My situation is a bit different than most of the guys I have talked to since most seem to have 50% custody or much less. Essentially, with 50% for the younger and 75-80% for the older, I am really always on and my home is always needed to be near their schools, activities, friends, etc. That is where the issue comes up. You raise good points though and they are definitely things in my thought process.
You raise good points as well. I think most parents would agree to sacrifice quite a bit for the kids. This will certainly be a tough time for them, but I have found many kids more resilient to divorce than most parents think. Make sure you make time to keep your own sanity through this whole process as well. Best of luck.

PS. be careful with the 60 day Roth "rollover". As you know, delays can happen in home sales and I would hate to be in a position where you lost all that Roth space or maybe had to pay taxes/penalties.

JGoneRiding
Posts: 1808
Joined: Tue Jul 15, 2014 3:26 pm

Re: Help/suggestions home purch/retirement loan - divorce

Post by JGoneRiding » Wed Mar 13, 2019 9:23 pm

You should ask your mortgage broker about the possibility of a bridge loan with the primary house as collateral? That might make things go smoothly.

If you are not in a hit market (the prices would suggest you arent) it's not terrible unusual to make an offer contingent on your house selling. You need to have your house listed and ready to go for this to work but it can work very well. You can ask for 48 hours of rent back from your buyers so you close your house in the morning and buying house closes in the afternoon and you have 48 hours to finish moving.

Leemiller
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Re: Help/suggestions home purch/retirement loan - divorce

Post by Leemiller » Thu Mar 14, 2019 7:40 am

How about you rent your house back for two months after you sell it to give you time to buy a new house? If you have a 60 day clock to return the money to your Roth, that creates a lot of pressure the negotiate down and things happen that delay closings. Another option might be the kids stay with their mom more of the time for two months and you rent a small place while your items are in storage. Given your additional care duties, I hope you’re getting child support. I’m sorry for your situation.

THY4373
Posts: 1195
Joined: Thu Mar 22, 2012 3:17 pm

Re: Help/suggestions home purch/retirement loan - divorce

Post by THY4373 » Thu Mar 14, 2019 8:11 am

OP I am a little older than you and I went through a divorce a few years ago and actually chose to rent a house (coming up on three years of renting) even though I could buy a place easily in my neck of the woods. My advice it is to consider renting longer term depending on your future plans.

A few random thoughts.
  • My son had no obvious issues with the move. My ex did keep our old house but honestly don't think it made any difference. I think the fact that my ex and I got along, acted like adults and the three of us still did things together as family mattered more. The only way I think my son would have been impacted by the move was if he had to change schools. My ex and I split his time 50/50.
  • Honestly I was a homeowner since the time I moved out of my parent's place after grad school (I did rent while in college/grad school) but I am loving renting. Renting and downsizing to a much smaller SFH that I rent means I have a lot more free time. Which I am loving. I am renting because in my moderate cost of living area homes just don't appreciate that much and I expect I'll likely move out of this area when my son graduates high school and this put me on the cusp of owing a place for only 5-7 years which with moderate appreciation didn't seem like a good idea
  • Renting has lowered my costs and allowed me to keep saving hard even down to one income. A lot of folks myself included are willing to rent less house (when I say less house I include things like size, location, build quality, etc) than they are willing to buy. I attribute this to the fact that rent is purely considered a cost vs some potential appreciation in the house you own. Thus renting is in part allowing me to continue on my early financial independence plan
  • Renting has been pretty stable for me so far (knock on wood). I have been here nearly three years and my rent has been flat so far. That said the one negative of renting for me is that there is always a risk that I'll need to move at some point before I am ready. To address that I have cut back on a lot of my stuff which in and of itself is not a bad idea and I keep my acquisition of new stuff very limited.
  • Does it make sense for you to buy now? Are you committed long term to staying in the area you now live? Perhaps too soon but are you interested in another relationship? If so at your age it is likely he/she might have his/her own place, etc, which might impact how long you keep this place. Essentially I would consider how long you actually think you are going to stay in this new place. If it is 10 years or more it likely makes sense to buy, closer to five years maybe not unless you live in a high appreciation area (especially given we are likely closer to the top than the bottom of the current expansion).
At the end of the day my divorce has turned out to be one of the best things to happen to me in my later life. While going through it was not exactly easy even though my ex and I largely cooperated and did a cooperative divorce now that I am on the other side my life is so much better. My ex is doing better, my son is doing great, I have a better relationship with my son (and indeed my ex) and I am doing awesome. It was a win, win, win. So hang in there it does get better.

Edit to add: When I got married I bought a townhouse for my now ex and I to live in, I owned a small condo previously. The folks who I purchased from wanted to rent back for a few weeks. So I sold my condo, moved back in with my parents for a few weeks and put everything in storage. Keep in mind I was single at this time and had an 800 square foot condo so not a huge amount of stuff. It was a royal pain the backside moving twice in a like 4-6 weeks. I for sure would think long and hard about doing that again especially with two more decades of accumulation of stuff.

Topic Author
retireearly
Posts: 116
Joined: Tue Mar 14, 2017 1:51 pm

Re: Help/suggestions home purch/retirement loan - divorce

Post by retireearly » Tue Mar 19, 2019 11:14 am

Thanks to everyone for the replies and insight. Bogleheads should have a board dedicated to this sort of stuff under the community section :happy

There is a lot of non-financial insight and wisdom in these posts!
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.

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