Tagged: Non priority NACA pay down rate
September 20, 2019 at 7:53 pm #60235outrenthomeMember
I have a question about the interest rate. Since I will be a nonpriority member in the Dallas, TX area, am I limited on the amount of interest I can buy down?
I was thinking of taking full advantage of the interest buy down. I read that the buy down is limited to 10% of the mortgage, so in case I was looking for a house with a $250,000, I would need $25,000 and that would buy down .25% x 10 points each worth $2,500 = -2.50%?
So if the interest rate right now is 3.375% then I can reduce it by 2.50% down to 0.875%, or am I limited because I am nonpriority?
September 20, 2019 at 9:47 pm #60350
- This topic was modified 1 year, 2 months ago by outrenthome.
I’m not sure where you read that. There are a few points I will make. First naca does not discriminate – all members are allowed to buy down the interest rate to 0.125% in 0.25% increments. The member however is limited in how many points they themselves can buy down. A priority member is limited to 9 points in buy down funds including funds from first time homebuyer grants. To decrease the interest further funds must come from seller contributions or the BOA matching program. Non priority members are limited to 7 points plus fees which works out to 6.5 points. The rest must come from seller contributions. You need to find out what your local regulations are though. I am in md. Maryland caps all seller contributions for conventional loans regardless of program at 3% of the offer price.
So with that in order to get a 0.875% interest rate on your example above you yourself would be limited to 16250 for interest rate and your seller would need to contribute 8750.September 21, 2019 at 12:51 am #60370outrenthomeMember
Ok now I’m understanding. Now I noticed on the booklet it says the “Seller” contribution is limited to 10% of the loan. But nowhere in the booklet does it say that nonmembers can only pay down up to 7 points, is that the same everywhere in the US? So I guess it means I can buy down up to 1.625% of the interest if the effective reduction is 6.5 points times 0.25%.
Now I need to understand the seller part. How does the seller contribute to my purchase? Is it something people who sell houses normally do? I owned a house a few years ago but the seller wouldn’t even budge to pay for repairs on the house… Can you explain this to me?
September 21, 2019 at 8:56 am #60378
- This reply was modified 1 year, 2 months ago by outrenthome.
It is completely up to the sellers discretion whether they want to contribute or not. It is also very common to ask. Most transactions at least ask. A motivated seller will contribute. An offer close to asking is more likely to get contributions. In a hot market maybe not.
Typically speaking the pays for your agent and theirs. This is not money out of their pocket but rather money deducted from the sale. So instead of getting the full amount they get the difference. Unless they have no equity in which case they would have to pay upfront. But since boa pays the agents for naca members it’s more likely to get seller contributions. Again though it’s completely up to them.September 21, 2019 at 10:00 am #60382CMA2013Member
As a non priority member, I was told I was limited to 4.5 points and could only buy my rate down to .625%. I questioned why I couldn’t buy 1 additional point to .125% and they said that was the rule.September 21, 2019 at 10:24 am #60384
When did you purchase? The rules are set by the bank boa and citi had different rules. Boa allows 0.25% reduction increments at 1% purchase price each. Citi allowed 0.125% reduction increments at 0.5% purchase price each. I think citi also capped the max down to 0.625. But citi stopped issuing mortgages in 2018.September 21, 2019 at 10:49 am #60386truque94Member
Tim Trumble can you please chime in on this? At my homebuyers workshop I was told that non priority members were now capped at 5% contribution, and that included any contributions from the seller.September 21, 2019 at 11:43 am #60387CMA2013Member
I went under contract in May. 15 year rate was 2.875 and buying down in .5 increments capped me at .625 after 4.5 points.September 22, 2019 at 4:26 pm #60421TTrumbleMember
Let’s set things straight. Unfortunately, there’s quite a bit of misinformation here.
Under the Qualified Mortgage regulations established by the CFPB, the buyer may contribute up to seven points (7% of the loan amount) toward buy down. From that contribution, BOA subtracts $3,000 for the broker fee and 3% of any repair escrows for the HAND fee. Typically this means the maximum that goes toward buy down is somewhere around five-and-a-half points.
The QM regs also state that the seller may contribute up to ten points toward the buy down.
Therefore, you will, for practical purposes, max out at about 15.5 points for buy down, which equates to a possible 3.875% rate reduction on a 30 year loan and a whopping 7.75% reduction on a fifteen year loan. Since those are both well above the current interest rates, you could easily buy down to the lowest rate possible 0.125% for either term. Any funds beyond those used to reduce the interest rate would be used to reduce the principal of the loan.
However, things change if you are in one of the qualifying MSA’s in which BOA does the automatic interest rate reduction if you are below 80% of the median income for the MSA. If you receive the automatic reduction (which by the way has been reinstated by BOA but now at one-half percent instead of a full one percent), then the maximum additional contribution by all sources is five points. (Yes, more CFPB stuff.)
It really only makes sense though. If you are below 80% of the median income for your area, saving the money for buy down is probably very tough if not impossible, which is where the idea for the automatic reduction comes from. Still, based on today’s rate of 3.25% for a 30 year, the reduction takes it to 2.75% and the the additional reduction from buy down takes it to 1.5% for the life of the loan. On the 15 year loan the five points is more than enough to get you all the way down to 0.125%
Not a bad deal all the way around no matter what.
Online operations, NACA
firstname.lastname@example.orgSeptember 22, 2019 at 9:29 pm #60439
Thank you for that explanation Tim, if one is less than or equal to 80%, can they opt out of the .50 reduction in order to increase their ability to contribute more than 5% total? I ask because my counselor went to submit me to credit access late Friday and said I couldn’t go lower that 1.75 from my lock in of 3.25. My seller is contributing 3% and I am contributing 7%, so I am thinking that I’ve been put in the less than or equal to 80% bucket since I am at 80.44%? I’m just trying to figure this out.September 26, 2019 at 2:08 pm #60580TTrumbleMember
Anything 80.01% or higher should disqualify you from the automatic rate reduction. So while I don’t know if an opt-out is available, it shouldn’t be an issue for you.
Online Operations, NACA
email@example.comSeptember 26, 2019 at 7:45 pm #60584
80% is the cutoff. You are are at 80.44. They make no exceptions. The reason is to make housing affordable. In most markets if you make less than 80% it doesn’t matter what program you participate in buying a house is often unaffordable even if you are capable of showing good financial habits. If you make over 80% chances are you can at least save. Same with being over 100% there are even more restrictions. It’s so people don’t game the system.
Another way to look at it is you were approved for a mortgage loan of much less than the house you want to buy. A bank would laugh and walk away. Naca gives you that ability.September 26, 2019 at 7:53 pm #60586
I think I accidentally deleted my post when I tried to go back and edit it:
I need some help here, I feel like I’m going crazy. I’m missing somthing important here, please bear with me.
I am under contract for purchase of a home in the amount of 193,000. I have negotiated 4% to buydown from the seller. I am being told that the maximum allowable for buydown from ANY source is 10,615 which is 5.5%, so the max that I can personally contribute to the buydown is 2,895.
I thought that any member could contribute up to 7% which was separate and apart from the sellers maximum of 10%, and anything above my 7 that I contribute would go to principal which the lender would match with a further rate reduction. Is that only available for people below 80%?
All of my plans are based on throwing 11% between me and the seller toward buydown, and I’m being told that I can only do exactly half of that.
What am I missing? The post above reads in agreement with the ability for my to contribute 11% between my 7 and my sellers 4, but my MC cannot do it in the system. How am I misinterpreting?September 26, 2019 at 8:08 pm #60587
Read my post directly above your new one. I responded before you deleted.September 26, 2019 at 8:35 pm #60588
Thank you for trying to clarify, but in your first post of the thread you wrote
“all members are allowed to buy down the interest rate to 0.125% in 0.25% increments. The member however is limited in how many points they themselves can buy down…. Non priority members are limited to 7 points plus fees which works out to 6.5 points. The rest must come from seller contributions.“
That’s what I’m trying to do, 7% from me and 4% from seller. Why can’t I do that? I’m still totally confused.
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