October 10, 2018 at 4:41 pm #45608
I was NACA qualified at the Atlanta Achieve the Dream event and I have now begun my house search. I am still confused on the lowest interest rate that I can reach assuming I am not doing any upgrades on a new construction home. I have heard 6.5 points, 7 points, etc for non-priority members.
The builder of my home offers $5,000 in closing costs which I will use to further buy down my interest rate. I read the purchase workbook but things are not clear for me because I am a non-priority member and the examples in the book are geared towards priority members. I know that I make too much money to qualify for the Lender Matching Grant. The house I want to buy is $205,000.
I calculated 2050 * 7 = $14,350. The builder will contribute $5000. Does this mean that I have a total of $19,350 to go towards my buydown? Or is it really $16,350 because Bank of America charges a $3000 broker fee? ($19,350 – $3000)?
At today’s interest rates, I calculated my final interest rate to be about 2.50% as a non-priority member in the Atlanta area. Is my math making sense? I hope one of the more seasoned members can help me shed some light on how this process works for non-priority members who are ineligible for lender matching grants.
October 10, 2018 at 5:00 pm #45611
- This topic was modified 4 months, 2 weeks ago by ShanniC.
You would have about $19k for buydown between your funds and the seller contribution. However, the 7 points could end up being less (anything between 5.5 6.5) depending on the lender and if a rehab is involved.October 10, 2018 at 5:04 pm #45612
@southflorida Thanks for your response. This is a new construction house so it will not need rehab. Could you explain where the $3000 comes into play? If I will have $19k for the buydown, does that mean I have to raise my minimum required funds to account for the $3000 that Bank of America will require?October 11, 2018 at 3:13 pm #45636
the $3,000 comes into play where the points would be decreased to about 5.5. For example, in your example, if the $14,350 that you would use to buy 7 points are decreased to $11,350, you would only be able to buy 5.5 points. Just to clarify, it’s not that BOA will charge a $3,000 fee, You just pay for whatever points you end up buyingOctober 19, 2018 at 8:28 pm #45778
@southflorida I am sorry but I still do not understand your explanation. @ttrumble can you expound upon this? What is the $3,000 required of borrowers who use Bank of America for? If I bought a house at the current interest rate with no buydown, and no down payment, how does this charge come into play?
I guess I do not understand what this $3,000 fee means as it relates to people buying new construction that would no repairs or rehab funds. I can’t find where this information is located in the Purchase Workbook or Qualification Workbook, but it is very unclear.October 19, 2018 at 10:12 pm #45782
@shannic The $3000 broker fee is subtracted from the 7 points for everyone. The formula is $205,000 x 7%= $14,350. At that point you subtract the broker fee from 7% — $14,350-$3,000= $11,350. That is the maximum amount of points you can purchase. The $3000 isn’t money you personally have to pay but it is deducted from your maximum point purchase. To find out how many points you can buy, divide the maximum amount by 1% of the loan amount ($2050) — $11,350/$2050. You can purchase a maximum of 5.5 points with BOA. The formula is different with Citibank. This does not include the money from your seller. The $5000 would allow you to purchase an additional 2.25 points. Keep in mind the they typically round down, not up. $5000 would afford you 2.44 points, which won’t be rounded up to 2.5.October 19, 2018 at 11:46 pm #45785October 20, 2018 at 12:20 am #45786October 23, 2018 at 10:40 am #45824
Just to make sure it is not an oversight, but seller/builder can contribute up to 10 points IN ADDITION TO the buyer’s 7 (or less) points. Also, interest rates remain the same, priority or non-priority members. If you are a non-priority member and can afford to do a 15-year mortgage, you will have to chip in less buy down amount and pay significantly less in interest component of your PITI.
Your situation: house: 205k. 1 point: $2050. Seller is giving 5k, or ~2.4 points. You can contribute ~11.3k or ~5.5 points. Total is ~8 points.
30 year scenario:
base interest rate: 4.375% with Principal+Interest payment of ~1023 (yearly interest paid in early years of mortgage: ~8.8k)
interest rate after 8 point buydown: 2.4% with Principal+Interest payment of ~798 (yearly interest paid in early years of mortgage: ~4.8k)
So, just by looking at the numbers, you will pay ~225 less and recover the 11.3k that you put in buydown within 3 years.
15 year scenario:
base interest rate: 3.875% with Principal+Interest payment of ~1503 (yearly interest paid in early years of mortgage: ~7.5k)
interest rate after 8 (technically 7.5 only for lowest possible interest rate) point buydown: 0.125% with Principal+Interest payment of ~1144 (yearly interest paid in early years of mortgage: ***~250***)
So, just by looking at the numbers, you will pay ~360 less and recover the 11.3k that you put in buydown within ~1.5 years.
Now comparing 30 years to 15 years, you will be paying 1k less (11.3k vs 10.3k) in buy down, paying ~350 more in monthly mortgage (~798 vs ~1144) but saving A LOT in interest over the life of the loan (~82.5k vs ***~2k***). This is savings of 40% of your house’s worth! So, if you can afford extra 350 bucks a month, I would go with 15 year mortgage!!!
Best wishes to you!
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