Current rent higher than NACA calculated mortgage amount

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This topic contains 21 replies, has 6 voices, and was last updated by  SnillocS 1 week, 4 days ago.

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  • #59010

    SnillocS
    Member

    What happens when your current rent is higher than your calculated mortgage amount? Does NACA require that you still do payment shock for a period of time to show that you can pay/save the difference? I do not see anything in the workbook that references this. In my case the difference is around $100/month but I’ve been paying this overage amount for over 3 years.

    Because the property is a new construction it is easy to calculate the mortgage amount that I would be required to pay.

    #59012

    Peapod0609
    Member

    Hi @snillocs,

    If your current rent is greater than your anticipated monthly mortgage payment, then no you do not need to save Payment Shock. Payment shock only applies to those trying to get a mortgage for an amount higher than their current rent (or if they do not have rent at all).

    So if you are already paying $100 more in rent than your projected future mortgage, you do not need to save payment shock. However, you still need to have your Minimum Required Funds.

    #59013

    Heather15
    Member

    NACA will only allow you to be approved for a mortgage that is up to 31% of your gross income per month. Also, your total monthly debts (I.e. car payment, credit cards, loans etc..) can not be more than 40% of your gross income per month. Could that maybe have something to do with why they won’t approve you for what you pay in rent right now? Payment Shock would only be relevant if you were paying less in rent then you want your monthly mortgage to be. I would do the math and see if maybe the 31/40% is causing the issue. For example, if you make $50,000/yr your monthly gross income would be $4,166.66. That would mean the highest mortgage payment you could be approved for (this includes PITI & HOA fees) would be $1291.66. But you also have to think about your monthly debts. In this scenario, your mortgage AND monthly debts could not exceed $1,666.66/month. So if your car payment, minimum credit card payments, loans etc were more than $375/month then it would drop your maximum mortgage payment amount. I hope that makes sense. Let us know what happens!

    #59015

    SnillocS
    Member

    @peapod0609, thanks for clarifying. Logically it makes sense that I wouldn’t have to do Payment Shock but wasn’t exactly sure given this scenario.

    @heather15, My intake meeting isn’t until December, however I’ve already calculated the numbers and know what my calculated mortgage amount would be. I guess technically, I’ve been living above my means for the past 3 years if according to the nunbers, I can only afford a mortgage that is $100 cheaper than what I currently pay in rent. I understand that most people are trying to get qualified to pay more. So this scenario was a little different. My housing ratio and DTI are well below the required percentages.

    Thank you both for responding!

    #59016

    Nelsont
    Member

    2 things

    31/40 is the max DTI however if your current rent is higher than 31% and you can document good payment history you can get up to 33/40. The 40 will not be able to be increased I don’t think.

    Also for what it’s worth you may technically not currently be living above your means. Traditional mortgage products and FHA loans will allow up to a 36/43 DTI. Naca has lower limits and tighter restrictions in order to make sure the members are set up in situations they can succeed.

    #59017

    SnillocS
    Member

    @nelsont thanks for making me feel better about the above my means part. You bring up some valid points that I did not consider especially NACA’s tighter restrictions. My current rent isn’t higher than 31% its just higher than the calculated mortgage amount. I was just a little confused about how that works when you’re paying more than what “naca” says you can afford. The manual calculation says I can afford, $1554, the house I want would be $1661 (which means under normal circumstances, I’d have to pay payment shock for that difference)… but my rent is $1750. So its a kinda weird sitiation I guess.

    #59021

    Nelsont
    Member

    It’s actually not uncommon. But if 1750 is below 31% then the most likely explanation for being approved for 1554 is that your DTI is above 40%. They will subtract from your approved amount until the total gets down to 40. If this is the case then paying off your debt would increase your approved payment.

    #59030

    southflorida
    Member

    @snillocs A piece of advice from my experience, try to get approved for 31% from the beginning, even if you think you won’t need to get to that amount, If for some reason you end up needing to increase your qualification later, it’s a pain in the neck that you can avoid from the get-go. If you start saving now the difference between your rent and 31% of your monthly gross income, you should be good when your intake appointment comes in December

    Also, just a small correction about @nelsont‘s comment regarding the FHA ratios. The housing ratio for FHA is also 31%, not 36%

    #59031

    SnillocS
    Member

    @southflorida, thanks for that tip. I honestly hadn’t thought about saving since I knew my 31% housing ratio was way above what I was trying to get qualified for. My 31% is $2,195…after tax, ins and HOA my affordable mortgage amount is $1,623…and I currently pay $1,750 in rent. Are you saying that I should start saving the difference between $1,750 and $2,195 or $1,750 and $1,623?

    #59032

    Its a possibility that you are taking losses month to month. If NACA sees your account declining month to month even if its only a few hundred bucks, they may count that against you. Your utilities and financial responsibilities go up a bit when buying a home. So maybe your account is declining $100 bucks or so a month or so instead of increasing. Try making sure that you save $100 or $200 bucks a month, so that in 3 months you can justify getting 31% of your gross income. tighten your budget just a little bit and by December you should have no problems. Please take southflorida’s advice and get that 31%regardless of whether you need it or not.I have really been paying for that mistake, I had to get two increases because I needed more for the house I wanted, its a total hassle.

    #59033

    Nelsont
    Member

    I think I see where the confusion is. People often confuse mortgage payment and mortgage amount. The 2 are not the same. Your mortgage payment is the same as your PITI or your approved 31% and will include your mortgage amount.

    You won’t be paying PITI separately – you get 1 lump sum bill that BOA divvys up.

    If you get a loan for 100k for instance your monthly bill will about $700. But only about $400 will be actual mortgage payments. You are paying BOA to pay taxes and insurance for you.

    Anyway, if I am reading this right your approved mortgage payment will indeed be 2195 (which includes the 1554) which means you will also indeed have a payment shock of $445 which you need to show you are saving every month without fail (your main checking account balance needs to increase by this amount every month).

    Averages do not count. So saving 400 one month and 500 the next is the same as missing a mortgage payment that month you saved only 400 so the clock starts over on your 3-6 months of payment shock savings history. Be sure to continue your payment shock until you close on your house.

    • This reply was modified 1 week, 4 days ago by  Nelsont.
    #59036

    southflorida
    Member

    @snillocs start saving the difference between $1,750 and $2,195. Take into consideration that saving that amount is not just putting $445 to your savings account every month, that’s not going to help you if your checking account balance also decreases by that amount. You need to add up the balances of all your bank accounts and make sure that the total is increased every month by at least $445

    #59037

    SnillocS
    Member

    @nelsont, okay, I think I get it now…finally. I was definitely not figuring that mortgage amount and mortgage payment were different. This makes much more sense now and why I need to save the additional funds. I was thinking that the mortgage amount was my payment so it didn’t make sense that I would have to save additional funds when my current rent was higher. And does it make sense to start saving these funds now? Or should I wait until my intake meeting in December? In other words, will naca even consider that I’ve been saving or does the “saving” clock start ticking after qualification?

    #59038

    SnillocS
    Member

    @southflorida thanks for this info. I’m trying to purchase a new construction like you did so timing is key and I plan to get qualified at my intake meeting 😁

    #59039

    Nelsont
    Member

    You should start now.

    If you wait then your counselor will say you aren’t ready to buy a house and need to demonstrate good financial habits before a new meeting a scheduled. They will then either put you on the calendar for a new appointment in 6 months or however long you need to meet the timeline or they won’t reschedule you at all and wait for you to reschedule once you satisfy your given action plan.

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