Acceptable payment shock source

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  • #48046
    frankysmom
    Member

    Hello again

    My husband has been at his job for well over 2 years. I am starting a job next week. By the time I attend ATD this summer or fall, I obviously won’t have a 2 yr work history.

    We plan to continue to live off my husband’s income only and save mine. (Approximately 3,000/month) Would my income count towards payment shock OR does it have to come from my husband’s place income?

    Thanks

    #48047

    They allowed any income to come for ours. I couldn’t use my part time job as a professor as the income they counted, however it could go towards our MRF.

    #48061
    TTrumble
    Member

    Hello frankysmom,

    You will indeed be able to use your income to save your MRF and interest rate buydown. However, since it’s not eligible to be used toward qualification and determining your affordability, it cannot be counted toward Payment Shock. Remember, Payment Shock is the means of demonstrating your ability to afford a payment greater than your current rent.

    Since this is a rather unusual situation, I checked with an underwriter just to make sure, who told me “If they can only save if she has income then she needs to be on the loan and her income stability needs to be in place. I cannot give him a loan based off affordability if he isn’t the person demonstrating the affordability.”

    As crazy as it may seem on the surface, Payment Shock will still have to be saved from his income with savings in addition to the savings from your income. In short, since affordability will be based on his income alone, Payment Shock must also be based on his income alone.

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    #48068
    frankysmom
    Member

    My parents and siblings are gifting us with the MRF. Besides the MRF how can my income be used in the most impactful way? I’d only be able to use my income To pay off debt (credit cards) only and not utilities, correct?

    If I am understanding correctly, recurring monthly bills will still be factored as an expense from my husband’s income thereby having zero impact.

    #48070
    TTrumble
    Member

    Hello frankysmom,

    You are correct that using your funds to pay the utilities, etc. will have zero impact. Unless your family members are giving you enough funds to buy your interest rate down all the way to 0.125%, saving it for interest buy down as mentioned before is still the single best use of the funds.

    Secondly, you can use the money to reduce the principal of the loan, hopefully enough to use a 15-year loan instead of the 30-year without raising your payment. If you are able to make it a 15-year loan at 0.125%, you will be astonished at how quickly your equity will grow since almost nothing will be going to interest each month. If you can do both, it will be the single smartest financial decision you will ever make.

    After that, use your income to pay off all your other debts and become debt free other than your house. (NOTE: From this point forward in this message, I’m speaking as an individual and NOT a NACA representative.) In fact, this would be a great opportunity to go all “Dave Ramsey” about your finances. While NACA has no connection to Dave Ramsey or Ramsey Solutions, the approach toward budgeting and money management in general is very similar between the two. Grab a copy of Ramsey’s book “The Total Money Makeover” and set yourself up for an extremely solid financial future.

    You have an incredible opportunity being able to live off of his income alone and dedicating yours to building your financial future. Take full advantage of it!

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    #48093
    frankysmom
    Member

    Please bare with me, so,

    Only husbands income can be used to qualify us.

    Since we have joint accounts, Underwriter would say, hubby nets $3,000 and if $2000 goes to expenses and miscellaneous, leaving $1000 then only that amount can be counted towards shock? And My income is neither here nor there as far as that calculation.

    BUT at the same time, the sum total of all of our accounts must result in the minimum payment shock?

    How much parsing does UW do? If I paid a utility bill with my deposits will that amount be subtracted from the shock since it “should?” come out of his funds only?

    Sorry for all the questions, i don’t want to miscalculate shock and ruin our chance.

    #48096
    TTrumble
    Member

    Hello frankysmom,

    You’re over-thinking it.

    You stated that you will be saving all your income. Since Payment shock must be demonstrably from his income however, then the sum total of all bank accounts each month must increase by at least the amount of your income plus the Payment Shock amount each month.

    Since it’s a joint account, then there’s no “his money” or “her money” other than what is deposited to the account. Then only thing that matters is that the ending balance each month increase by at least your income plus the Payment Shock figure.

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    #48169
    frankysmom
    Member

    Essentially we cannot touch /withdraw my income amount?

    Many apologies for being Colombo (aging myself) with a dunce cap. ATD is coming up soon and don’t want to bungle this opportunity. Thanks for all your work.

    #48188
    TTrumble
    Member

    Hello frankysmom,

    LOL! I remember Columbo very well (plus the other two shows that rotated with it, McCloud and McMillan and Wife)! Around here, that “oh. just one more thing” line actually works as well for members as it did for for Columbo!

    Let me simplify this for you as much as possible. YOUR income should be doing one of two things, building savings and paying down other debt. When you use it to pay down debt, make sure you are able to document it so it can be subtracted from your income and not his. The trick to making it work is to not use all of your income to reduce debt and have at least part of it go to savings each month. The reason being that if you happen to spend more than the amount of your income to reduce debt, then part of it was by definition his income, and that can eat into your Payment Shock. (If that doesn’t quite click, just trust me on this one…)

    So for now, every penny goes to savings or reducing debt. Okay? Please keep me updated.

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    • This reply was modified 2 years, 5 months ago by TTrumble.
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