Does NACA only work with buyers with good credit?

Home Forums Purchase Program Does NACA only work with buyers with good credit?

This topic contains 12 replies, has 6 voices, and was last updated by  TTrumble 5 months ago.

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  • #41813

    mcruise
    Member

    Hello,

    My timeline so far is as listed below:

    3/18: Homebuyer Workshop @ Upland office
    3/20: Received NACA ID
    4/27: Intake appt

    At the intake appointment, the MC regardless of my credit score, made us feel as if they only cater to those with 725+ scores, at least $7k in savings, and with little blemish in the credit report. I am pretty young, in my early 20s and my partner and I only bring in probably 72k annually combined. The MC told us we needed about $6.2k in MRF and recommended we set a follow up appt after 6 months in October. Ater I told her we only had $2.7k in the account. She also told me that cosigned loans will affect my DTI, when I pointed out to her in the NACA workbook that they would overlook cosigned accounts if there was proof that we are not the actual person holding the debt and there was a history of payment on it. The debts we have are as follows:

    Rent: 1375
    Car $440.12
    Motorcycle $190
    Student Loan: ~$236/mo (23k balance)

    My partner and I are able to contribute at least $800 to savings which is more than our $300 payment shock. (Still don’t really understand payment shock)

    NACA only qualified us for $273k. In Los Angeles, that would not get far, so should I continue pursuing this program? Ive already paid NACA dues, the joint credit report, but apparently since my partner and I are not married, she asked for another $13.04 to pull a single credit report. Im all for this program’s great benefits and the money it saves us in the long run, but 6 months for a follow up appt?! Ive been reading other people’s threads and they seem to get appointments back to back each month. I understand the dues of $25/year isn’t a lot, but those credit reports they pull every 60 days adds up. On top of the dues.

    Upset and confused,
    Me

    #41814

    pratik
    Member

    Hello @mcruise,

    Congratulations on your accomplishments in young age! Let me dive in the numbers: How did you come to conclusion that you need a payment shock of $300? Is it related to 31% of monthly income limit? If so, your rent (1375) and payment shock amount (300) in total (1675) makes 31% of your monthly income (5403, or yearly 64839). If your income is higher than that, the 31% of it would only qualify you for higher monthly payments, but lets just go by 1675/month mortgage example:

    There is no fix price that one can put on NACA qualification. PERIOD. The $273k is just an estimate. You can purchase a house that is higher or lower than the value listed on the qualification. LA area has $453.1k cap, so as long as you are below, you are good (as long as the mortgage is below 31% of your monthly income AND less than your rent+payment shock).

    I said above is because property tax, insurance and HOA vary. HOA might not even be counted in the mortgage and it may be a separate payment all together. Lets take your 1675 monthly mortgage affordability, with 1.5% tax, 100/month insurance and no HOA in your monthly mortgage. This will qualify you for 255k house at 30 years. However, if you manage to buydown all the way down (10 points from seller + 7 points from you) to 0.0625% interest rate, you can now afford 390k house at 30 years!

    Now, assuming you are saving 800 in payment shock, your affordability is (1375+800=) 2175/month (assuming your monthly income is 7016 or yearly income is 84193). For this mortgage, at 1.5% tax and 100/month insurance and no HOA (or discounted HOA in mortgage), you can buy $336k house at 4.125% interest and $514.8k house at 0.0625% interest after 17-point buydown (if you find a targeted area – otherwise $453.1k limit apply for non-targeted area).

    Please know that I did not take into account your outstanding student loan – I do not know how to factor that in, unfortunately. As for MRF, you can ask family/friend for a one-time gift and cut on 6-month wait, since you are qualified already. Please know that there will be final affordability assessment at the time of loan approval anyway, and the qualification numbers will change then!

    Best wishes to you and please let me know if you have any questions. Hang in there, you’ve got an opportunity to enjoy the best mortgage (as long as your limits/constraints work out in your favor!)

    Pratik

    #41821

    Hi,

    You might want to check out the purchase workbook, particularly p. 23:

    https://www.naca.com/media/1249/purchaseworkbook.pdf

    Basically, your mortgage (with interest, taxes, insurance, and HOA if applicable) cannot be more than 31% of your gross income.

    In addition, your total debt — the mortgage+interest+taxes+insurance and any other monthly mandatory payments you make — cannot be more than 40% of your gross income.

    As for the MRF, everyone needs that, regardless of credit. It’s a combination of prepaids that you give to the bank (for your taxes, insurance, etc) at closing and monthly mortgage payment reserves. That’s not a penalty because of your credit. Keep saving each month till you have enough, and if you want to buy a more expensive house, keep saving till you have more for buydown.

    Also, follow up with your MC about the co-signed loans, and verify with your MC what your actual income looks like for NACA purposes — you may make 72,000, but they may calculate it differently, and their calculation is what counts.

    So, two factors to consider:

    1. You say you make around 72,000 and have 866/ month debt payments. If that’s accurate, then your total DTI (debt to income ratio) will limit you at 2400/month for housing and debt (=40% of your monthly gross)

    2. 2400-866 = 1534 = max monthly payment for housing

    How you can buy a more expensive house:

    1. reduce your debt (pay off one of those loans, such as the motorcycle).
    2. increase your income
    3. save up money to buy down your interest rate, so that you can buy at a higher purchase price for the same monthly payment.

    #41828

    mcruise
    Member

    Hi,

    Thanks for the feedback @homesweetboston and @pratik.

    Yes, we were set on paying off the motorcycle off by the end of this year. We’ve been making more than the minimum payment to get it down ASAP, because that loan is the easiest to pay off. We’re trying to always make more than the minimum payments for our debts, so when the MC looked over our statements, she probably felt that we couldn’t qualify for much with all the debt payments we were making.

    Either way, 6 months is more than enough time for us to save the MRF, get a few inquiries deleted from our credit report, not add new ones and pay off debt to make it look like we can purchase a home at a higher cost. My other question is, is our annual income too low? I understand $72k is our gross, but we have 2 kids and come home with at least $63-$65k, is this a very low amount? In LA, the median income is in the mid-$50k area. We are young, but we have 2 kids and are trying to be responsible adults and have a stable home where they can grow up, which is why we chose the NACA program.

    #41829

    . My other question is, is our annual income too low?

    It’s not about whether your income is “too low” — it’s about what 31% of your gross annual income is, since that determines the max mortgage payment you’d be making, regardless of your debt. That’s true for everyone in the program.

    Right now, it looks like your debts are lowering your max. If you indeed pay off some of those debts, that’ll allow your monthly payment to go higher, but it’ll still be capped, no matter how much you save per month, at 31% of your gross. So if, according to NACA’s calculation of your income, you make 72,000 annually pre-tax, you’ll max out at 1860/month PITI (mortgage payment, all inclusive) if you’ve paid down enough debt to not have your debt factor into your limit. To get any higher than 1860, you’d need a higher income.

    Do check with NACA to see what your annual income actually is, for their purposes. It may be different from your ballpark figure!

    Note, your monthly payment is king, not the purchase price — your buydown amount/final interest rate/taxes/insurance costs all factor into determining what the final purchase price will be, and it’ll be calculated on a case-by-case basis, depending on the house you’re looking at. So, if you get a place with lower taxes and insurance costs and no HOA fees, you can get a higher purchase price than if you get a place with higher taxes, etc. But regardless, the monthly payment amount will always max out at 1860 with your current income.

    #41895

    TTrumble
    Member

    Great job homesweetboston and pratik! I’m not even going to touch the topics since you explained things so well. The only thing I’ll comment on is the statement “Still don’t really understand payment shock”.

    About the only way to not understand Payment Shock is to over think it, since it’s actually an extremely simple concept. If you want a mortgage payment that is larger than you current rent, you need to be able to demonstrate that you can actually make that higher payment each and every month with our fail. This is accomplished by saving the difference between your current rent and desired mortgage payment amount without fail for a minimum of three months, and continually every month thereafter until you close on your home.

    Where most people get confused is how to demonstrate it in your bank accounts. Simply showing an additional amount in a specific savings account each month doesn’t work, the grand total of all bank accounts must grow each month by at least the Payment shock amount.

    So if your Payment Shock is $300 and the ending balance on your checking account statement last month was $1000 and the balance for your savings account was $500 (total $1500) the sum total of the two accounts must be at least $1800 this month, no matter how much is in each account.

    For instance, if there is $1300 in the checking account and $500 in the savings account (total $1800), you have met your Payment Shock requirement. But if there is $800 in checking and $800 in savings (total $1600), you have failed to meet Payment Shock even though the balance in the savings account went up by $300.

    In other words, it’s the total of the two accounts that matters, not how much is in one specific account.

    I hope that clears things up.

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    #41902

    jcleus200
    Member

    @ttrumble I am so happy you explained how the payment shock work with multiple account. I am very sad that my counselor never explained it to us like that because that may cause us not qualified or delay it. From what you just said it look like We’ve been failing PS for 6 months now. My wife and I have 3 account together 2 checking for each of us and a shared saving for both of us. Our payment Shock is $500 per month but we always put $1000 and always put it on the saving.If we knew it that way we could have put the extra $500 by splitting it on with $250 on each checking account. Our Counselor told us just to save PS but never told about all 3 account

    Do you think this could delay our qualification? or can prevent us to be qualified?

    Thank you for your answer

    #41906

    southflorida
    Member

    I don’t think you got the PS explanation, it doesn’t matter in what account you put the money, what matters is the total sum of all accounts, after adding them all up, the balances have to increase by at least your payment shock, it doesn’t matter how much in each.

    #41908

    pratik
    Member

    @jcleus200, i think you are good (unless you are withdrawing in excess of $500 total between your 3 accounts). no need to add money in all accounts – as @ttrumble said, do not overthink it. Just get a blank paper, put in balances of all 3 accounts for past 3 months. Now add the monthly closing balance of each account for each month. Now subtract this monthly total from the previous monthly total. If the difference is >$500 for each month for the past 3 months, you are good πŸ™‚

    #41911

    Like pratik and southflorida said, the key to payment shock is this:

    — how much total money did you have at the end of last month (according to all your bank statements added together)?
    — how much total money do you have at the end of this month (according to all your bank statements added together)?

    The total amount needs to go up by at least the amount you determined your payment shock to be.

    So: if your rent is currently $1000 and you want to get a mortgage for $1300, you need to have at least $300 more in your bank accounts (total) by the end of each month — ideally more that that to create a little cushion for yourself.

    One complex thing: If you get a special “one-time” deposit, like tax return refund, they might bracket that out. So make sure you save your designated payment shock without accounting for those kinds of special deposits.

    #41939

    TTrumble
    Member

    Hello jcleus200,

    I agree with southflorida, I think you still didn’t quite get the idea.

    Try thinking of it this way: When you get your bank statements at the end of the month, add up the ending balance of all accounts (you apparently have three). Now, think of this total as the “master” account, which is the grand total of all the cash you have right now.

    When the bank statements arrive next month, add up the ending balance of all three accounts again to get the new figure for the “master” account. If this figure is at least $500 higher than it was last month, then you have successfully saved Payment Shock. If the balance of the “master” did not go up by at least $500, you did not save your Payment Shock.

    So you can see that it doesn’t matter which one of the individual “sub” accounts the money is in, as long as the “master” account total has gone up by at least $500.

    BTW, southflorida, pratik and homesweetboston are all on the mark too. (Thanks guys!) πŸ™‚ Hopefully between the four of us, we have made it clear.

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    • This reply was modified 5 months ago by  TTrumble.
    #41945

    jcleus200
    Member

    Thanks a lot TIm, I was overthinking it. It make totally sense. I was a little bit worried about it.
    @homesweetboston Thank you for your answer

    @ttrumble I hope to meet you in Newark at the end of the month, I am flying from Atlanta to go there.It will be such an honor.You help this Naca community ,this forum a tremendously .Thank you again.

    #41969

    TTrumble
    Member

    Hello jcleus200,

    It’s easy to over-think. (It took me a bit to grasp it as well when I first started dealing with purchase files.)

    I’m looking forward to meeting you as well at the event. So far I have met at least one Forum member at each of our Achieve the Dream events, which has been a real highlight for me. (In fact, it was southflorida I met at our Miami event.) I saw your Facebook post, and got a good chuckle out of it!

    BTW, we’ve had to postpone the Atlanta event, so you are making a smart move coming up to Newark for this one. Looks like we’ll be doing a Philadelphia event after that, then heading out west for a series of events.

    See you in Newark!

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    • This reply was modified 5 months ago by  TTrumble.
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