Getting Ready, Some Very Specific Questions (Current Homeowner)

Home Forums Purchase Program Getting Ready, Some Very Specific Questions (Current Homeowner)

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  • #48366

    Hi! We went to our workshop a couple of weeks ago, and just found out we won’t get an intake appointment until July! That’s fine, they warned us at the workshop, but we were all ready to go with a traditional mortgage when we stumbled on NACA and now it’s the obvious choice. We have picked out a new construction home already (but fortunately didn’t sign the contract yet) so we want to be as ready as humanly possible for our Intake. Beyond what is answered in the handbook, we have run into the following questions:

    1) First are foremost, we have a HELOC and a number of other debts that will be completely paid off when we sell our current home. How is this looked at during the process, given that we’re required to sell before closing on the new home anyway?

    2) Do contributions to Retirement accounts count as “savings” for Payment Shock? What about interest gained on those accounts? My co-buyer is eligible to withdraw from those accounts, but it seems silly to have to withdraw from them to prove “savings” so I assume the value counts.

    3) Because of the proceeds of the house, we would have a very large amount of money immediately in “savings” – does this contribute in any way to the Payment Shock process?

    4) Whole Life Insurance policies are not mentioned anywhere, and have a cash-out value that is accessible to us at any time. How is this money treated? If it is not counted somehow, can it be withdrawn into other accounts to count as “savings”? I assume this money counts already as “saved” but it’s not mentioned anywhere.

    5) I am currently renting from my co-buyer. If we begin documenting this rent, does it count as both “rent” for me in terms of Payment Shock -and- “income” for her that she can then “save”?

    I know these are a lot of extremely specific questions, but we’re hopeful about going into our Intake 100% prepared, so I appreciate any help anyone can offer.

    #48372
    southflorida
    Member

    I will answer the questions I know to the best of my knowledge, notice that I often write “I think” o “I don’t think” because I am not a NACA employee and I don’t want you to take anything I say as official

    2- I don’t think Retirement Contributions would be treated as savings for payment shock

    3- Savings is totally different than Payment Shock, savings can help you with your minimum required funds to close, interest buydown, down payment if you want or need to give a down payment. Payment shock is the amount that you need to save every single month in order to prove that you can be qualified for a specific amount. For example, if you want to be qualified for a monthly payment of $1,500 and your rent is $1,000, your payment shock would be $500 and you need to save at least that amount every single month

    4- I think that the only way this can be counted as savings is if you write a letter of explanation indicating that you intend to cash-out the money before the purchase of the house. You would have to prove that you did cash-out before closing

    #48409
    TTrumble
    Member

    The HELOC is considered in the same category as your first mortgage. it is considered part of your current housing payment and must be paid off with the proceeds of the sale just like the first.

    Your contributions to a 401k can be used to count toward Payment Shock, but it is generally not a wise move at all due to the commitment that you would be making by doing so. Remember that your Payment Shock is the difference between your current payment and your future mortgage payment. As such, the Payment Shock Savings each month is how you are going to make the larger mortgage payment. Using your 401k contribution for Payment Shock means that you are committing to STOP contributing to your 401K and using those funds from now on for the mortgage payment.

    Bottom line: You are risking your retirement by using 401k contributions for Payment Shock. Don’t do it, even if it means you own a little less house.

    The proceeds from the sale of the home are in no way related to Payment Shock. Again, Payment Shock is how you demonstrate your ability to make your future mortgage payment each and every month. Lump sums in a bank account do not meet that burden of proof.

    The proceeds of the sale of the original home can be used toward your Minimum Required Funds and of course for interest rate buy down, and also principal reduction if the amount is more than the 7% cap the law places on the buyer’s contribution toward interest rate buy-down.

    Funds from a cash-out of a whole life policy must be liquid and in a bank account before you proceed to the Credit Access stage of the process, just like 401K withdrawals, gift funds, tax refunds and so on.

    You are renting from your co-buyer? You need to consult with your counselor immediately, as this will likely disqualify you from the process. NACA policy clearly states that no member of the household may have an ownership interest in a property. The NACA program may not be used to buy a home from another member of the same household, nor can you “buy it from yourself” (i.e., a re-fi).

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    • This reply was modified 1 year, 5 months ago by TTrumble.
    #48435

    Hi Tim,

    Thanks so much for your answers. I don’t think I explained myself precisely enough. My cobuyer and I currently live in a home that she owns, that will be sold before the new home is purchased. We will be purchasing a new home together. So she is currently paying X amount for the mortgage, and I am paying X amount (to her) for my rent. We were told as long as the home we currently own was sold before we close on the new home, there’s no reason we can’t go through the process. My question was whether both the mortgage amount she pays and the rent I pay to her both count toward Payment Shock.

    #48449
    TTrumble
    Member

    Hello BakerTheBaker,

    Thanks for clarifying, you had me wondering for a little bit… 😀

    You are correct that the sale of the current home will have to be completed before you can close on the new home.

    Here’s the official lowdown:

    1. If a Member owns a home when they start the NACA process, they will be eligible for counseling however, before they can become qualified, they must show proof they have their current property/properties Listed. A copy of the listing agreement and active MLS print out should be scanned into additional documents.

    2. Once Qualified, the Member(s) may begin to shop but NACA will not provide and Property Specific Letter or accept a Purchase & Sales contract unless the current property/properties is officially under contract with a qualified buyer.
    • The Member is required to show proof of contract from a qualified lender, documenting an approval letter for the buyer.
    • The Member will also be required to include a contingency within their Purchase & Sales contract stipulating they cannot close on the property until their current property is closed and funded.
    • NACA Underwriting will reject a Member at Credit Access if the two requirements above are not met.

    3. If Credit Access is approved per terms defined in #2, the Member will not be given a Clearance to Close (Final CTC) until they provide proof the current property/properties is closed and funded.
    • The loan will be conditioned for evidence of the final Closing Disclosure for the property/properties sold.

    Since the rent you pay her would theoretically in turn become part of her mortgage payment, you won’t be able to count both.

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    #48465

    Thanks @ttrumble! Those answers make sense based on my understanding of things, which is reassuring.

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