Buydown Max for non priority members

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  • #58382
    truque94
    Member

    Hello All,
    I went to my purchase workshop last night and was told that my maximum buydown was 5%, which includes my funds and any seller contributions. I thoght that I could contribute 7% of the purchase price minus the $3,000 and the seller could also contribute up to 10% which could also be used for rate buydown. Tim Trumble can you please tell me what is the current maximum buydown for non priority members? I want to get this ironed out before I sign a purchase contract. Thank you in abvance for your help!

    #58385
    Nelsont
    Member

    7 points is the max for priority members.

    Either 5 or 5.5 is the max for non priority members.

    I don’t know what the $3000 you refer to is but I am assuming it’s good faith money. If that is the case it is applied towards your property taxes and home owner’s insurance needed at closing. Anything left over will go toward your buy down.

    Also 10% is a heck of a lot to be asking a seller to contribute. Check your local regulations. I’m in MD and the state caps seller contributions on conventional loans (which is what you get with naca) at 3% regardless of situation or program. For me 3% was $11000 so that’s a nice chunk of change.

    Furthermore you are asking to buy down the interest rate 17 points. Right now the interest rate is 3.125%. At .25% per point and a .125% minimum rate there are only 12 points to buy otherwise you’d have negative interest and you can’t get that.

    For 17 points to work the interest rate would have to be 4.625. It hasn’t been that high all year. So I think you’re going to be fine.

    #58386
    truque94
    Member

    Hello Nelsont,
    Thanks for the reply. Under HOEPA the buyer can contribute up to 7% munis the $3,000 origination fee. Tim Trumble commented recently that the seller can also contribute up 10% on top of that, even for a non priority memeber. I was told last night that is not the case, therfore I am seeking clarification.

    #58394
    Nelsont
    Member

    Thank @jlands for this information:

    http://forums.naca.com/?topic=buy-down-hoepa-lender-conditions

    “for Non-Priority members, the total contribution to buy down the interest rate is 6.5% of the purchase price”

    Priority members have different restrictions.

    #58395
    Nelsont
    Member

    Oh I spoke a little too soon. From @TTrumble:

    jlands: I tend to agree with your assessment of the situation as you described it on July 5th. Under HOEPA, the buyer may contribute a maximum of seven points (7% of the mortgage amount) toward buydown. From the buyer’s funds, BOA subtracts the $3000 origination fee plus 3% of any rehab escrow for the HAND fee. Therefore, the member may contribute up to seven points toward buydown, but not all of it can be used toward buy down. Hence, the six-and-a-half point figure.

    However, that is in fact BEFORE the seller’s contribution. Even as a non-priority member, the seller may still contribute up to ten points toward buy down, while any buyer funds over seven points reduce the principal amount of the loan, but do not qualify for the lender matching funds.

    #58408
    cb
    Member

    I may have edited my last message too quickly because I’m not seeing it, so I apologize if this is a duplicate message.

    This is a similar question to what I had earlier in the week. Even though 7-10 points is a lot to ask for from the seller, it’s the only way for non-priority members to get the maximum buy down. As I currently understand it (so I could be wrong), this can be achieved in 2 possible ways (and like Nelsont said, it may be limited by your state/county):

    1- A house is on the market for a long time and the seller is willing to put 7-10 points down for you (seems unlikely given the market, but maybe I’m wrong)

    2- Increase your offer on the home by “X” points –> Have seller contribute “X” points towards rate –> Now that the points are paid off, pay down money that would lower the loan amount back to it’s original value.

    The only thing I’m hung up on is that after all points are paid down, if excess cash goes towards a “down payment” and the rest is a loan or if the loan has to be taken for the full amount of the purchase price of the cash goes towards principle. So it either looks like:

    Example 1- Offer accepted for $110,000 on home
    Loan of $100,000 and $10,000 to cover “X” points of seller

    Example 2- Offer accepted for $110,000 on home
    Loan of $110,000 and $10,000 to cover “X” points of seller goes towards loan and reduces principle from $110,000 to $100,000 ***Which is not allowed***

    #58409
    Nelsont
    Member

    I believe you can contribute as much as you want. The only restriction would be toward buy down points.

    So for example (leaving the seller out of this to simplify it) for a $100000 house at today’s interest rate of 3.125% a non-priority member would be allowed to buy down (from buyer contributions) the interest rate 6.5 points to 1.5% which would cost $6500. If the buyer had $10000 to put down after their MRF was satisfied then $6500 would go toward buy down and $3500 toward principal reduction giving the buyer a loan of $96500 at 1.5% interest. Make sense?

    I apologize but your examples are a bit confusing to me. I think you are getting hung up on having a loan be a certain amount. I would not worry at all about principal reduction unless you absolutely need to buy a house you cannot afford without spending more than the maximum buy down.

    Buyer contributions are applied in this order: MRF, Buy-down points (only if there are funds beyond the MRF), principal reduction (only if there are funds beyond the buy down limit)

    Seller contributions work similarly just without MRF.

    #58410
    cb
    Member

    I (and some others) are just curious on how non-priority member would get the MAX buy down.

    The ONLY reason principle reduction is involved in my example is because I don’t expect a seller to contribute upwards of 8-10 points because they are generous. At least in my area, there would have to be some incentive to the seller to do this. Make sense?

    So what incentive would be possible to the seller? The only thing I can think of would be a higher offer price. But now, the buyer runs the risk of offering more than the appraisal, which NACA states they will not offer a loan for. See how this can be an issue?

    If the buyer had $10000 to put down after their MRF was satisfied then $6500 would go toward buy down and $3500 toward principal reduction giving the buyer a loan of $96500 at 1.5% interest. Make sense?

    This does make sense, but I have a question. In this example. is the NACA loan issued for $100,000 with $3,500 being removed from principle OR or the loan issued for $96,500. That would make a huge difference for Non-priority members.

    And yes- I am getting hung up on the loan amount for 3 reasons.
    1- Seller buydown will not be financed with the loan.
    2- The loan cannot be more than the appraisal.
    3- I need to know if money after points buydown reduces loan principle or loan basis.

    So to me, the loan amount is very important. It’s not as simple as throwing excess cash at it and getting a mix of point/principle reduction. I’d MUCH rather have a higher loan amount with the lowest interest possible.

    • This reply was modified 1 year, 3 months ago by cb.
    #58412
    cb
    Member

    And I really do apologize for hijacking the thread, but this is also relevant. I’m also curious how the seller can pay up to 10 points when everywhere I read online about conventional loans says:

    Down Payment……….Maximum Seller-Paid Costs
    less than 10%………3%
    10%-25%……………6%
    25% or more………..9%

    And I also thought that down payments weren’t allowed with NACA.

    • This reply was modified 1 year, 3 months ago by cb.
    #58414
    truque94
    Member

    No problem cb, I just really need to get an answer to my question it possibly could determine my decision to buy.

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