Helping Ourselves
WE NEEDED MONEY to close on a new home. The mortgage process progressed smoothly���until the underwriters suddenly rejected the property right before closing. To get together the money needed to close, my wife and I had to resort to loan sharks���ourselves.
We borrowed from our IRAs. The rules allow tax-free distributions for either a 60-day rollover to a new IRA or reinvestment back into the same IRA. When we called Vanguard Group to execute our ���rollovers,��� the phone reps were well-versed on this short-term, self-funded loan strategy.
They even advised us on the critical rules. The money must be reinvested in an IRA within 60 days or taxes are owed on the withdrawal. Rollovers are allowed only once per 12-month period across all IRA accounts. Since IRA rules apply to individuals, household members can take advantage of the strategy at the same time.
Why was all this necessary? The mortgage application process, property appraisal and title search were slow going, thanks to today���s hot housing market. The mortgage process took a lethargic 70 days, only for us to get rejected due to extra land and summer cabins included in the purchase. Those items added value to the property but didn���t ���conform.���
We would have been smart to have lined up alternative financing possibilities, such as setting up a home equity line of credit on our old house, arranging to borrow against our taxable investment accounts or pursuing a higher-cost mortgage option elsewhere���one that acknowledged the property���s unusual features.
Following the rejection, we immediately pursued a cash-out refinancing on our existing home. We got a head start by using the same lender that had refused to write us a mortgage on the new property. This refinancing payout landed in our bank account 20 days after closing on the new property. We ���rolled over��� this money back into our same IRA accounts well within the 60-day limit. We even got a little lucky: While the money was out of our IRAs, the stock market declined 5%.
We borrowed from our IRAs. The rules allow tax-free distributions for either a 60-day rollover to a new IRA or reinvestment back into the same IRA. When we called Vanguard Group to execute our ���rollovers,��� the phone reps were well-versed on this short-term, self-funded loan strategy.
They even advised us on the critical rules. The money must be reinvested in an IRA within 60 days or taxes are owed on the withdrawal. Rollovers are allowed only once per 12-month period across all IRA accounts. Since IRA rules apply to individuals, household members can take advantage of the strategy at the same time.
Why was all this necessary? The mortgage application process, property appraisal and title search were slow going, thanks to today���s hot housing market. The mortgage process took a lethargic 70 days, only for us to get rejected due to extra land and summer cabins included in the purchase. Those items added value to the property but didn���t ���conform.���
We would have been smart to have lined up alternative financing possibilities, such as setting up a home equity line of credit on our old house, arranging to borrow against our taxable investment accounts or pursuing a higher-cost mortgage option elsewhere���one that acknowledged the property���s unusual features.
Following the rejection, we immediately pursued a cash-out refinancing on our existing home. We got a head start by using the same lender that had refused to write us a mortgage on the new property. This refinancing payout landed in our bank account 20 days after closing on the new property. We ���rolled over��� this money back into our same IRA accounts well within the 60-day limit. We even got a little lucky: While the money was out of our IRAs, the stock market declined 5%.
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