Simplifying Hive Bookkeeping
Our home purchase story has come to an agreement and general plan. We are still not under contract. However, we will be taking care of that soon. First, we need to sort out the financing, which is a variation on seller finance. In this way, we are able to sidestep the complications and cost that banks introduce.
We will be borrowing the maximum out of Mrs. TWM's 401k , which is not sufficient to cover the entire cost of the house. The balance will be covered by the owner taking back a note which will have a six month period of no payments. The 401k loan will take out payments from Mrs. TWM's paychecks every two weeks. This will actually turn out to be beneficial in that there will be at least two months out of the year that takes three payments, which should help pay down the loan a bit sooner. There are also no penalties for paying off a 401k loan early.
As for the note carried back by the owner, it is for one fourth the cost of the house. In the coming six months, we will be paying off credit cards completely in order to have the cash flow available to cover the payment. There is also some expectation that we will set up a home equity line of credit to pay of the note.
Of course, there are other costs associated with owning a home. We will have to have home owner's insurance and foot the bill for all repairs and improvements. And, in the near term, there are costs for the transaction, which will include a home inspection.
The risks we face are not having enough cashflow to make payments. Or, we are dependent on Mrs. TWM keeping her current job. If she loses it, then the loan would come due immediately. Our best bet is to build up equity as quickly as possible to mitigate that risk. One problem we currently have is that my own personal credit is inadequate, which is exacerbated with the tight money practices in effect resulting from pandemic response.
The opportunity presented to us is that by setting up a home equity line of credit, we will eventually be better positioned to put down payments on investment properties that will no doubt become available from the mountains of foreclosures that will occur in the coming months. There will be many nonperforming notes for sale in future. For now, we just have to focus on our current task, which is to buy the home. We can dream later.
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