Q & A with Dottie Herman

» Featured Columnists | By Dottie Herman | August 12, 2010 3:23 PM ET

Q1 - What is a temporary mortgage buy-down and how does it work?

A - A temporary buy-down reduces the monthly payment on your mortgage for a specific period of time.  The most common use is for the 1st thru 3rd years of the mortgage. If today's 30 year fixed rate is 5% you can do a 3-2-1 temporary buy-down, which means your 1st-years rate will be 3% below the loan's fixed rate. In this case it will be 2% for 12 payments. Then 2% below, or 3%, for the next 12 payments, and for the 3rd-year the 12 payments will be at 4%. Thereafter it will return to and remain at 5%. The cost is exactly the difference between the payments you make during the period and the 5% payment.  This money is collected upfront and held in an account to be added to your payment each month.  These programs are often used by builders and sellers as an incentive to buyers.

Q2 - Can I use my retirement funds for part of my down payment on a house? My wife and I want to buy a second home as an investment and want to use some of those funds. 
A - Yes, you are permitted to use retirement funds for the purchase of a home. Keep in mind that, if you are under age 59 1/2, you may be subject to penalties for liquidating some of these. With that in mind, only the net amount will be considered available for use by the bank. With some retirement funds you should check to see if borrowing against the account is a better option.

Q3 - I bought a home about 4 years ago, but the current rates are much lower than what I am currently paying. What costs are associated with refinancing?

A - The closing costs vary from state to state and even by county in some places.  Bank fees are approximately $1000 and the remaining fees are related to Title insurance, recording fees, and taxes charged on the transaction.  The law requires that a lender must provided you with a Good faith Estimate of closing costs at application and most of these fees cannot change once you apply for the loan.  Call your bank or local mortgage lender who will be able to give you the cost of refinancing your property and you will be on your way to deciding if this is the right choice for you.

Q4 - I am trying to sell my home, and while we have had some activity we haven't had many offers. Would making it a rental help? We just need to supplement the cost of the home a little bit as it is our second home and we are having a little trouble paying the mortgage. We do not necessarily need to sell at this time.

A - Since you have had activity but no offers it sounds like you need to adjust the price.  If a price reduction makes a sale no longer attractive for you, a good backup plan is to offer the home for rent.  Another option to consider is to offer the home for sale and for rent at the same time.  That might be the fastest way to resolve this situation. 

If you have a real estate question for Dottie, please send it to;
NOTE: Due to high volume of questions, not everyone can be answered, but she'll do her best.

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