Liquidating ROTH IRA to fund downpayment and other buying questions

[Safire]

First of all, I am thankful for any advice I can get from knowledgable people here. We are FINALLY ready to buy a house and of course Murphy's law hit -- interest rates skyrocketed so our previous downpayment won't make much of a dent. I am aware that we can refinance if / when interest rates go down but it would also be a costly process.

We have a very old 401K the overwheming majority of which we rolled over into a ROTH IRA and the rest to a tIRA. This money would be really helpful as a downpayment although I understand that's not what an IRA is for and also that we'd owe taxes on it as he is below 59. My question is:

1. Aside from taxes and penalities is there anyhing else we need to be aware of when it comes to liquidating a ROTH for down payment? WILL IRS allow us to set up a payment plan?

2. Are buyers able to get a copy of the original URAR form as part of the purchase?

3. I hear that "buyer's agents" have a "fiduciary duty" towards the buyer. BUT if their commission is dependent on the sales price of the house, why would they be inclined or motivated to get the buyer the BEST price? I would assume that their duty is to themselves first!

4. Are there any pitfalls with going with the salespeople (home inspector / contractor etc) that the agent recommends?

5. Now, this will sound paranoid. I believe the sales price of the home will have the agents' commissions built into it and that the seller pays this commission. BUT, is it ever possible that a seller reneges on the commission and then we (buyers) become responsible for it?

6. Do we get the docs we have to sign off on PRIOR to closing?

7. What does title insurance cover and what does it not cover?

I am very nervous as this is a HUGE purchase and I don't want to have a negative experience, or worse, feel scammed. I understand I've asked a lot of questions and am grateful for your time and feedback. We NEED a house and renting is no longer viable for us.

Thanks again for your help. Much appreciated.

[38Chevy454]

You *can* get some of your Roth money out even being less than 59. You can take out your original contributions. But not any increases in the value. For example, if you converted $200k over the years in total, but current value is $300k, you can withdraw $200k without any taxes or any penalties.

On the realtor, the listing contract specifies the seller pays the commission. Even though your buyer agent is helping you to purchase, the commission is paid by seller.

Yes, you can use the recommended inspection persons from the realtor. But you should also be present during the inspections.

You will get copies of closing documents a few days prior to closing. This is your chance to review the various fees and money due at closing.

Title insurance covers to make sure there are not any claims against the property. In other words to ensure you have clean ownership upon closing.

[Out-to-Lunch]

How long ago did you do the rollover conversion to the Roth account? If more than 5 years ago, you can withdraw the amount of that original conversion. See this page, especially near the bottom: https://www.bogleheads.org/wiki/Roth_IRA

[SecondCor521]

1a1. Using Roth money for a house down payment is short sighted. You're giving up probably several decades of tax free growth on that money, which is a lot to give up. If you were my kid or sibling, I'd recommend working second and third jobs, or waiting to buy, or buying something you can afford with the down payment you have now (ignoring raiding IRAs). You considering using your IRA in this way would make me inclined to believe that you are desperate or impatient or both. Desperate or impatient people tend to make bad decisions in general and end up in situations that are not fun.

1a2. There is an exception to the 10% penalty for the first $10K of an IRA withdrawal for first time home purchase, if that applies to you then you might as well use it. See instructions for Form 5329, line 2, exception code 9.

1a3. The other posters above have given you essentially the right answer. Your Roth contributions can be removed any time. Roth conversions must wait 5 years. Earnings must wait to age 59 1/2 or are subject to both taxes and the 10% penalty (except the first $10K as noted above).

1b. Yes, you can set up a payment plan with the IRS. They will charge interest (currently at 7% I think), and there are fees if it's longer than IIRC 6 months.

2. The general rule is whomever pays for the appraisal gets to see it, and they can share it with whomever they choose. So if you pay for it, yes, you'll get to see it. If the seller for whatever reason pays for it, they might share it with you if you ask nicely. You can always write it into the contract if it's important to you.

Real estate practices vary by region. Around here a typical buyer will make the offer subject to financing, and the mortgage company will require an appraisal, which the buyer pays for and gets to see. But we don't use URAR forms in my area.

3. With the typical (around here) real estate commission being 6%, their commission doesn't vary that much with the sales price. They'd rather have a happy client who will refer them to friends and family. But yes, they do work for the sale, which explains some of their behavior if things get rough. They may try to manhandle their buyer if their commission is in jeopardy and the buyer looks like the easiest rock to move. They may also throw in some of their commission if the sale hinges on $200 or $500 and the buyer and seller just can't get to a deal.

4. They're probably decent and it's an easy choice to go with them. They may not be the best but a typical buyer doesn't know contractors or inspectors and the quality of their work as well as a realtor would. The realtor also has an incentive to use good folks - if not then the buyer is not happy and won't provide referrals.

5. Not possible around here with the normal process. There is a title/escrow company involved, and both you and the seller get to see the docs and will sign them essentially on the same day. The title/escrow company sits in the middle and makes sure the deal is executed properly and holds the money in suspense until it's all done. If the seller were to attempt to change the deal at the last minute in any way, then the escrow company would step in and stop the whole thing.

If it helps, I've never heard of something like that happening.

6. If you ask for them, yes. It usually takes the title/escrow/mortgage folks a bit of time to put everything together and finalize it all, but all the documents should be done at least three days and maybe more before closing. Just ask your escrow officer for them and they should be happy to oblige.

I think this is good practice, and have done it myself. It's nice to have the time to review everything at my leisure, rather than in an escrow office where the officer just wants your signature in all the 100 spots you have to sign.

On actual signing day, I just check that the numbers and address and names match what I expect, and that the documents in general look familiar.

7. Title insurance, as another poster said, just confirms that the title to the property you are buying, which is the official ownership of it, is clear of any other claims. Other claims might be something like one of the prior sellers didn't have legal right to sell the property, or an old mortgage never got fully paid off, or a contractor put a mechanics' lien on the property because they weren't paid, or the state has put a tax lien because someone didn't pay taxes, or an improperly recorded or unknown easement, etc. The problems are rare but expensive to fix. If you buy the title insurance and a rare problem crops up, the title company is supposed to step in and do the expensive work to fix it.

Title insurance doesn't protect against anything else. It doesn't protect against fire/wind/hail/smoke damage - that's regular homeowner's insurance. It doesn't protect against flood damage - that's flood insurance. It doesn't protect against foreclosure - that's PMI, which actually just protects the lender, not you. It doesn't protect you against the inspector missing issues, or you buying a house that you can't afford, or buying the wrong house, or buying a house at the wrong time.

Respectfully, you don't need a house, even in capital letters. That's a rationalization. You need air, water, food, shelter, and basic medical care. Everything after that is a want IMNSHO.