MRF Clarification Needed

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  • #60522
    SnillocS
    Member

    According to the NACA Qualification Workbook, in the “How much money will you need to buy a home” section, it states that you may be required to have 2-12 months of real estate taxes in prepaid escrows. That is such a huge gap. How is it determined whether you pay 2 or 12 months of taxes upfront? I’m trying to secure my MRF funds and the difference between paying $918 for two months and $5,500 for 12 months is quite substantial. Thanks!

    #60523
    Nelsont
    Member

    Your MRF will be determined by your MC in your first intake session. Your MRF will be listed on your action plan summary and will be broken out into exactly what it includes. Your MC will be going over your action plan during your intake and explaining everything. Generally speaking the worse off your history the more you will need. Think of it like collateral. If you already have somewhere close to your MRF in savings have a perfectly clean credit history with great scores and can demonstrate all the workings spending and saving requirements then chances are you won’t need to put a lot of taxes in escrow upon closing because you are not, in the bank’s terms, a credit risk and are likely to be able to pay everything on time. If on the other hand you have a questionable history as did I then they will essentially say we believe in you but, we want an extra guarantee so we will take a few extra months taxes just in case.

    One way to look at is the MRF will always be less than the required down payment plus closing costs if you were to buy a house without going through NACA. And just so you’re aware the 2-3 months piti as part of your MRF is not paid at closing but rather a safety net built into the system to make sure when it’s all said and done you are not depleting your bank account and actually have some money left over after you close.

    #60524
    SnillocS
    Member

    Ahhhh! Thanks Nelsont! That makes perfect sense. I knew there had to be a method to the madness!;-)

    #60525
    BeHappy
    Member

    With that being said Nelsont, on my action plan the MRF is quite low. If it’s required to have minimum 2-3 months piti why would that amount be listed so low? Just curious.

    #60526
    Nelsont
    Member

    Everyone is unique. NACA is different in that they require the safety net. Most banks recommend 6 months of piti in savings but do not require it. The 2-3 months required as opposed to 6 months recommended is kind of like meeting in the middle of the standard practice. But the general ranges for property taxes and piti are different to start. Everyone needs to have home owner’s insurance, taxes, piti, neighborhood association fees if any and the suggested $1000 for good faith deposit (though it’s more typical to put up 1%). The amount of piti needed and the amount of taxes needed will be entirely up to your situation.

    The good faith deposit is explained in the book that it is returned to you upon closing. This is not exactly true. It is simply subtracted from the remaining balance owed.

    • This reply was modified 1 year, 2 months ago by Nelsont.
    #60529
    BeHappy
    Member

    Ok I understand that. Now I think the MC has to make an error. Regardless to what she entered more will alway be better. Thanks for the explanation.

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