October 23, 2018 at 1:04 pm #45840
I’m currently searching for a home in Long Island, NY. I am a non-priority member which limits the areas I can purchase. I was wondering is there a cap on the buy down amount/interest rate I can buy down. For example I am looking for a home that is $400,000 and I’m looking to buy down the interest to a 2.0. Can I buy down the interest rate to a 0% if I wanted to as a non-priority member?
Also, If we started the NACA process in early 2018 can we be grandfathered in to buying anywhere or do we have to go by the MSA Guidelines.(<100%)?
I would really appreciate any help.October 23, 2018 at 1:10 pm #45841
You are capped at 7 points (or less if lender is BofA, ~5 points or more, depending on purchase price) and your seller/builder is capped at 10 points. 17 points can bring interest rate down from 4.375% to 0.155% on 30 year mortgage, but if you elect to go with 15 year mortgage, you will need 7.5 points to bring it down from 3.875% to 0.125% (or 0.0625% if Citi is lender).
You won’t be grandfathered in to buying anywhere, unfortunately. However, the bright side is now you will have <100% as priority areas and not <80% as targeted areas. So, your coverage has increased if you want to buy beyond the maximum purchase price as applied earlier.October 23, 2018 at 2:24 pm #45844
Thank you for you quick response! So I want to make sure I understand. As example On the interest rate today on NACA 4.375% I can only buy down 7 points to 2.625? Correct me if I’m wrong please? 1% of the purchase price ($400,000)every $4000 would reduce .25 of interest rate therefore I’m only allowed to reduce 1.75% off the interest rate with $28,000 which would leave me at a 2.625 interest rate? I don’t think I quite understand what you mean by seller/builder is capped at 10 points. Can you please elaborate? I don’t qualify for any grants therefore the money for the buy down is from my savings. I believe they stated the lender would be Citibank. I would appreciate any help you can give to clarify this.October 23, 2018 at 2:39 pm #45846
Yes you got it right on 1 point bringing down 0.25% interest rate and you, as a buyer, is capped at 7 points.
Additionally, you can pursue your seller to contribute towards “closing costs” as well, which can be as high as 10 points.
Now you wonder why would seller contribute towards closing, after paying the seller fees etc? Well, say your seller is offering FREE upgrades to make the offer more attractive. Or offering discounts of 5-20k on the listed price because the house has not been selling after a few weeks/months. You accept that offer but insist that rather than discount on the purchase price (or free upgrades), seller offers you the difference in closing.
Since you are good with numbers, you will instantly appreciate how this proposition will help you save A LOT of money by decreasing the INTEREST component of PITI in your mortgage, even when the purchase price is increased. Same logic applies on the value of buydown over downpayment (provided you are certain of living in the same house for 5 years if 30 year mortgage or 2.5 years if 15 year mortgage, to break even on the money you instantly burnt to bring the interest rate down).
It is easy to get contributions from the seller if it is a new construction (builders give “free” upgrades, that you want to turn into seller contributions + “preferred lender” clause where builders give additional discount: you sign their preferred lender agreement for additional discount >> bring NACA deal on the table >> “preferred lender” defaults as NO ONE can match NACA’s deal >> obliged to give you the discount while you close with NACA!). Not to say preowned house sellers can’t offer it, they are typically constrained unless they are in rush and willing to take a hit in the interest of urgency and you come in at right time and close!
Where are you buying in Long Island? I was recently listening on NPR on how so many houses have still remained abandoned after the mid 2000 crash. You can take advantage of the housing situation (provided the school zones etc work out)
Cheers!October 23, 2018 at 3:19 pm #45847
Thank you so much for the details. I now understand how I could get up to 17 points put together. I’m currently looking in Suffolk county. Nassau county taxes are too high and when factored in with the price I am capped out on my monthly mortgage payment. I have been through a couple of counselors at NACA and when my file was sent to underwriting they calculated out my monthly payment a lot lower than what im currently paying combined with my rent and my payment shock. I have scheduled an appointment to have them reevaluate my savings and possibly give me a higher monthly mortgage payment. Homes in LI have gone up in price and I constantly find myself loving a home and an area but cannot move forward because the area/my income is above the 100% MSA or the monthly mortgage would be higher than what I was qualified for. Are you familiar with Long Island? Is there any areas you would recommend where NACA would easily approve? Also, I was never given much information on Rehab. Would you know if NACA would approve cosmetic rehab on a property. I would be willing to buy a property to fix up but I have a feeling NACA would put up too many restriction that maybe it would be best to go with a newly remodeled home. Any thoughts? Thank you.October 23, 2018 at 4:24 pm #45849
You’re welcome! Being a Brooklyn dweller I have visited LI often, but never screened it through the eye of real estate – wish I could help. Make FFIEC geocode your best friend and do your due diligence by combining FFIEC, Google Maps and Zillow/MLS. Run your own numbers before you even venture on recommending property to your NACA realtor for a visit. This will save you a lot of time and effort and you will be in control. I would recommend against going with HAND as it can be painfully long. If anything, get a rehab-worthy property that is inspection-friendly (can pass) and do work yourself AFTER closing. Also, keep in mind that 15 year mortgage may be more achievable than you think. Say you have 8 points to spend on a 400k property,
30 year: 2.375% after 32k (8 point) buydown: Monthly PI $1554 and half of it going in interest (so, 9k+ in interest yearly for first few years, ~160k over 30 years in interest)
15 year: 0.125% after 30k (7.5 point) buydown: Monthly PI $2243 and ONLY $40 going in interest! (so, ~500 in interest yearly for first few years, <4k over 15 years of the mortgage!)
So, for additional $700, (which you were to THROW AWAY in interest with 30 year mortgage), you are building up equity for the SAME/LESS BUYDOWN amount! Now I understand you would have to be making ~95k to do that, but it would be much more financially sensible decision if you can do it. Additionally, if you have to move for any reason, the money you saved on interest against your buydown amount will break even in ~2.5 years for 15 year mortgage but will take 5 years for 30 year mortgage.
Hope this helps!
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