Affordability Amount

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  • #70246
    Nikkiw843
    Participant

    Hello all-

    I have a little dilemma. I got prequalified for $1250 monthly payment which gives me around $250k for a home. However, where I live I cannot find a good home in a good neighborhood for that amount. How Can I increase my approved payment amount ? I have car payments, student loan payments and credit cards. The only thing I think I can do is zero out all of my credit cards. Can I use MRF funds to do that ? Please help.

    #70250
    TTrumble
    Member

    Hello Nikkiw843,

    Was the $1250 less than 31% of your gross income? If so, reducing debt may help increase your approval amount.

    Better yet would be to buy down the interest rate. In short, reducing the interest gives you more toward principal (i.e., a larger loan amount) at the same payment amount. Ask about down payment assistance grants in your area that may help you buy down the rate.

    Funds used for paying down debt can be credited toward your Payment Shock, but not your MRF. MRF must be liquid funds as they are used to pay for inspections, initial taxes and insurance and maintaining an emergency reserve.

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    #70251
    Nelsont
    Member

    Increasing your income or decreasing your monthly debt obligations are the ways to increase your approved amount as long as you are not already approved for 31% of your gross income.

    You are definitely on the right track. You could pay off your car or pay a substantial portion and refinance. You could zero out your credit cards.

    If your savings dips below your mrf you will need to save it back up again before you can buy a house. You will also need to provide letters of explanation for every bill you pay and obtain the payoff letter from the loan originator. This will likely prevent you from saving payment shock as well so get a LOE drafted for that too.

    If you do all this you should be in a very good position.

    #70253
    Nikkiw843
    Participant

    @TTrumble
    The $1250 is less than 31%. However, my husband and I are consider nonpriority in our area. So with the max we can buy down we will not get the amount we need.


    @Nelsont

    The only way we can pay off our credit cards right now is using MRF. There is no other option for us. We’re doing a new construction so if we take some from MRF can we use it to pay off debts and save it back before closing ?

    I’m so confused

    #70256
    Nelsont
    Member

    I am not sure though if you are already under contract what do you need a higher amount for? Voiding your contract will likely lead to a loss of your EMD.

    And there are plenty of builders and even more sellers of existing homes that will contribute to your buy down. The max is 10% on top of your 5 points.

    #70258
    Nikkiw843
    Participant

    @Nelsont we have not signed a contract yet. Still in the pre-qualification stage with NACA just wanted to try to get resubmitted for a higher qualification amount.

    #70259
    Nelsont
    Member

    A few pointers for working with a builder:

    They are like a used car dealer and will try to strong arm you. Stand your ground and be firm in negotiations. They will sometimes make it seem like they won’t work with naca members or they won’t work with any lender but their preferred lender and title company.

    In reality it is illegal to state they don’t want to work with you because you are a naca member. They probably won’t say this but, hint at it using language that skirts around the issue. If they give you that impression, are firm with their stance on lenders and title company and refuse to offer upgrades if you don’t go with their lender then they are simply not being forthcoming because they will get a higher commission if you do it their way.

    They are often required by law to accept another lender if you can get better financing (and going through naca you certainly will). Naca will also require you to use an naca approved title company so it’s possible you need to do a split title closing.

    After it’s all said and done and the only way to negotiate in free builder upgrades is go with their lender then do that. Then transfer the application to naca and they will often carry the upgrades over. Then you get exactly what you want πŸ™‚

    And also please do not agree to any per diem penalties.

    #70349
    TTrumble
    Member

    Hello Nikkiw843,

    Increasing income or reducing debt are the only two ways to increase your approval amount, plus increasing income can take a while depending on how you are making that increase.

    If you use MRF to pay down on debt, you will need to rebuild those funds to at least the amount your counselor gives you before you can be sent for Credit Access Approval.

    The thing you really need to be asking yourself though is if you aren’t trying to buy more house than you can really afford? You’re already above the median household income for your area and the five-point buy down limit won’t give you the purchase amount you want. Plus, based on what you have written, you have enough non-housing debt that it is reducing your approval amount.

    Put those items together and it starts to look like you may have your sights set a little too high a little too soon. Give your situation a good hard look. It might be such a thing that either a little less house now or giving yourself more time before you buy are your best answers.

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

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