Payment shock calculations?

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  • #62056
    firmeh89
    Member

    Does anyone know how payment shock is calculated? It seems like putting the amount your payment shock supposed to be in a savings account every month is not good enough for payment shock calculations. The way I did it was on every biweekly check I did a direct deposit of half my payment shock amount Into a separate savings account and my next biweekly check I would put in the rest.

    #62059
    Nelsont
    Member

    31% gross income – current rent = payment shock

    Here is what trips people up: they don’t want to see that you literally put your payment shock into a savings account. They want to see that the sum total of all your bank accounts increases by your payment shock amount. So let’s say you have $500 in one account and you have a $300 payment shock you put into another count. That $800 total. That means the next month those 2 accounts must equal no less than $1100. Which also means if you have $600 in your payment shock savings account after 2 months and $400 in your other account then the clock starts over because that counts as not saving. In that example your one account must never get below $500 under any circumstance. Make sense?

    Also you can manage your money any way you see fit but, the less accounts you have the easier it is for your MC and the underwriters to review. Using 1 bank account your statement balance must simply be $300 more than the month before using the example above.

    #62060
    firmeh89
    Member

    I think I understand, thank you!

    #63590
    Kristijay
    Participant

    Payment shock is NOT 31% gross income- current rent.

    Payment shock, as defined in the current qualification workbook on pg 20 is:your DESIRED mortgage payment (not to exceed 31%)- your current rent. I just want to make this distinction because I’ve seen this question asked and responded to in the same manner, but that is not correct per the qualification workbook.

    #63591
    Nelsont
    Member

    @Kritijay

    Your approved monthly payment is automatically 31% unless:

    1. Your DTI is greater than 9%
    2. You ask for less than 31%

    Therefore whether you want to buy a house that costs less than 31% or not your MC will automatically adjust your payment shock to 31% – current rent unless you say something. BUT if you do then you will ONLY be qualified for less than 31% even if you don’t have debt. This is how it worked for me countless others on this board across the country. You will also find examples on this board if you follow the book verbatim and ask for less then you will end up handcuffing yourself when it comes to repairs and buy downs and negotiations and possibly need to requalify.

    #63593
    Kristijay
    Participant

    Whether or not you choose to allocate 31% of your salary to your mortgage payment is a personal choice and debatable quite frankly. What is not debatable though, is the definition of payment shock. It is simply your desired payment (the choice of UP TO 31% of your gross income)-current rent. I think as a voice of knowledge on the forum, it is important to present the facts as they are to avoid misunderstanding and confusion. When you state “you cant be qualified for less than 31% even if you want to”, that is just simply not accurate.

    #63594
    Nelsont
    Member

    OK then let me restate. Unless you ask for a specific amount or your DTI is high then your approved amount is automatically the maximum 31% and regardless of what the workbook says your MC will take liberties and make your payment shock 31% – current rent. That much is fact. I am sorry for misrepresenting.

    #63595
    Nelsont
    Member

    There are also many examples of people on this board who normally would qualify for 31% but asked for say 25%. If they were to then want to make an offer on a house that costs 26% they would be denied and would need to be qualified all over again. It is for reasons like this that NACA representatives on this board in all the workshops I volunteer at advise to always ask for maximum if you are given a choice. There is no rule that says you need to buy a house at 31%. But there is a rule that says if you ask for less than 31% then that lower amount becomes your absolute max and getting up to 31% would require re-qualification.

    #63596
    Nelsont
    Member

    While I think what you are doing in reading the workbook is wise and is something everyone on should do…many questions posed are answered in the workbook, you need to take some things with a grain of salt. For instance the workbook say (or said at one point) you can close in 28 days. That is not true anymore. Naca gets their part done in 28 days. Bank of America takes an additional 30-60 days after NACA’s 28 days. The MCs at the workshops I volunteer at say this and say to prospective members realistically you need at least a 60 day contract. The workbook also says $1000 is a typical good faith deposit. You can do that, sure, but typical is actually at least 1% which may be a few thousand dollars and some sellers won’t accept less than that. The workbook says (or used to) you can buy down your interest rate to almost zero. That is not true any more. The workbook also says you get your good faith ($1000) back at closing. That is not exactly true. It is subtracted from the balance due. So just some things to consider. Yes the workbook is fantastic source. Just keep in mind everything is not so set in stone.

    #63597
    Kristijay
    Participant

    Nelson, while that may in fact be true and those examples have happened to some people, it is important not to misrepresent the true definition of payment shock. If you want to caution people against having to be re-approved for the maximum,then go for it. That is a legitimate discussion and concern. But to state that you must save the difference between 31% of your gross and your current rent as a definition of payment shock, otherwise you won’t be qualified is inaccurate.

    #63598
    Nelsont
    Member

    OK. My advice, as stated above, is to be as informed as possible as the workbook is a great source but, currently contains some outdated/wrong information and in real world application MCs do not follow the workbook verbatim.

    #63599
    Kristijay
    Participant

    While there are parts of the book that are obviously guidelines and subject to change, I think it’s safe to day that payment shock is clearly defined. On that note, I’m done. Have a great day.

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