When NACA gives you an estimate of your monthly payment, do they include the buy down points in this? For instance, if I’m willing to use $12,000 for buy-down points, and that increases my home price by $15,000, will NACA tell me that, or do they only qualify a monthly payment? I”m not sure I”m making sense! I just want to make sure they include my buy down money when they tell me how much I can afford!
No. Your monthly payment is the monthly cost of the house only – what you pay bank of america every month – principle, interest, taxes, insurance aka PITI. Your mortgage is PI but you also include TI in a lump sum so your mortgage payment is all 4 combined.
The buy down is one time savings. It is not included in your minimum required funds (MRF). Naca will only qualify you for a monthly payment. It is up to you to figure out how much buy down it would take to make the monthly payment affordable.
I will say a couple things though. As mentioned the buy down is not included in your MRF. So if your MRF is 5000 and you want to buy down 12000 then you will need to show you actually have 17000 in your checking account. You will need to show 5000 in that example to qualify but by the time you put in a contract that extra 12000 needs to be there.
Each 0.25% reduction in interest will cost you 1% of the purchase price of the house. There is a maximum reduction of 1.25% in interest or 5% of the purchase price of the house. If your income is 80% or below the MSA median income for your area you are automatically gifted a 0.5% interest rate reduction at no cost to you on top of whatever you decide to buy down.
With that all said buying down $12000 worth of interest will allow you purchase a home considerably more expensive than just increase of 15k. Each 1% of interest you drop might lower your payment by about $100 per month and increase your buying power by 50k or more.
Just doing simple math here a house that costs $240,000 will cost $12000 to buy down the interest rate to the max (2400 x 5).
Just circling back to your main point. Buy down is an option. You do not have to take advantage of it. One thing it does is allow you buy a house you actually did not qualify for. You will be qualified for a no money out of pocket loan. If you want to spend money out of pocket then that is buy down.