# Credit Access – buy-down confusion

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• #44600
Pearl609
Member

Hello All!!

So I am at the credit access stage of the process and I have been using the online NACA calculator religiously to help me determine how much I needed to save for my buy-down.

When I went to my credit access appointment, the numbers were not adding up, my MC said that I was limited to 6.25 instead of the 7 points I thought the buyer could contribute towards buy-down.

Also, the NACA calculator uses 4.0% as the starting interest rate, and my starting interest rate is 3.875, yet the payment he gave me was \$43 more than what the NACA calculator gave me AT THE 4.0% so I am totally confused!

@TimTrumble, any input? @pratik, I know you are great with the numbers, can you help me out??

#44604
southflorida
Member

Who is the lender? CITI or Bank of America? Do you mind sharing the purchase price so I can make the calculations?

#44606
Pearl609
Member

@southFlorida

The lender is Citi and the purchase price is \$375,920

#44608
southflorida
Member

I don’t know why they said it was 6.25 points, in my experience it was 6.5 points. Also, the rate at the NACA website is an estimate.

You need to pay 1% of the loan amount for each point so it’s \$3,759.20 for each point.

\$3,759.20 X 6.25= \$23,495 assuming they allow you to buy down 6.25 points.

Assuming it’s a 30 year loan, each point is worth 0.25% so the 6.25 points that you are buying would discount the rate by 1.5625%

Since the rate that you got was 3.875% minus 1.5625% you would end up with an interest rate of 2.3125% assuming that the rate is not being discounted further with a seller contribution or lender match.

I went to the mortgage calculator in google and a 30 year loan of \$375,920 with an interest rate of 2.3125 would have a monthly payment of \$1,449

Now, the \$1,449 is only the mortgage (principal and interest), you would have to add the taxes, insurance and HOA (if any). Do you already know how much the taxes are going to be? Is it a resale or New Construction?

#44612
Pearl609
Member

@southflorida thank you so much for that breakdown!!!

It is a new construction, builder is giving 10k towards buy down and I am just below 100% of the median income so I am eligible for the bank matching grant.

I have 44k available funds for buy down and princ reduction, so with the builders 10k, that’s a total of 54k.

HOA is 125 and HOI is \$64, we estimated the taxes at the highest rate until the title company gets us the exact numbers \$470.

#44615
southflorida
Member

With the \$10k seller contribution and the lender match grant your interest goes down to 0.28% and a monthly mortgage payment of \$1,089. At least in my city the NACA title company told me that they use 1% of the purchase price as the yearly taxes estimate

#44619
JHarris981
Member

If you’re with CitiBank then the lowest rate you can receive is 0.625%. You need 15.25 points to bring your rate down from 3.875 to 0.0625. That would cost you a total of \$57,327.80. Here’s the math:
Purchase Price: \$375,920
1 point costs: \$3,759.20 which brings the interest down by 0.25%
15.25 points are needed to bring rate down to the lowest allowed: 0.0625%
15.25 points x \$3,759.20 = \$57,327.80 needed

You are capped at purchasing 6.25 (I’m not sure why you can’t purchase 7 points unless you are making repairs via HAND. This might be one reason). As @southflorida mentioned you can bring down your rate to 2.3125% by purchasing the 6.25 points (at a cost of \$23,495 to you). You need an additional 9 points to bring it down to 0.0625% – the lowest allowed.

The builder is offering you \$10,000, which will allow you to buy an additional 2.5 points (which will cost \$9398 with \$602 remaining). This brings your interest rate down to 1.6875. You would need 6.5 remaining points to bring you down to 0.0625%. If you can put down \$24,424.80 toward principal reduction then the lender grant will match that and further bring you down to the lowest rate allowed for CitiBank – 0.0625%.
Per your calculations after purchasing the initial 6.25 points you have \$20,505 remaining (\$44,000-\$23,495 = \$20,505), which would allow you to purchase 5.25 points, bringing you to an interest rate of 0.375%, which is an awesome interest rate.

When I crunch the numbers you have a monthly payment of \$1272.58. I used the numbers below that you provided:
HOA fee per month: \$125
HOI per year: \$768
Taxes per year: \$470

#44627
pratik
Member

Hey @Pearl609,

Sorry for the late response – unfortunately handle use in the forum does not trigger notification to recipients.

@JHarris981
has right numbers – however, i am afraid you will be capped at 7 points (ignoring your MC’s 6.25 number) from you and 10k from seller (= 9.66 points or \$36,314) on buydown. One thing you could do is to get “free” upgrades from builder and request to increase their contribute towards closing/buydown.

You didn’t mention approx. taxes, so I am going with conservative 12% or \$313/mo taxes. Using rest of the values as you provided, you would get \$1290 in P+I and \$1792 in PITI.

Now, if we go with 6.25 points as your MC suggested, the buydown would be \$33,495 or 8.91 points, and would bring your P+I to \$1324 and PITI to \$1826 or so.

Hope this helps – bring me any questions. The estimates are generally off by a few bucks, and \$43 offset is kinda high – what did you use for tax assessment in your estimation?

#44638
southflorida
Member

I insist that @Pearl609 would end up with an interest of 0.28% or whatever closest interest threshold may be (0.275% or 0.2875, etc), not 0.375%. I think the total funds for buydown are added up and then the points are calculated.

\$20,505 Lender match grant
\$10,000 Seller Contribution

54,000 TOTAL

54,000/3,759.20 = 14.36 Points

14.36 X 0.25% = 3.59% Total interest buydown

3.875% – 3.59% = 0.285%

The monthly mortgage payment (not including Taxes, Insurance and HOA) would be \$1,090

#44645
JHarris981
Member

Sorry @southflorida your numbers are incorrect. As @pratik mentioned my numbers are correct. Your math is correct but that is not the way buydown is done for lender match grant. I am a NACA member who is eligible for the lender match grant. Total funds for buydown are not added up that way. The member must first purchase the maximum number of points (be it 7 points or in @pearl609’s case 6.25) before lender match grant kicks in. Any additional money (contributed by buyer only) over the 7 points is then applied to the principal at which point the grant kicks in. Seller contributions are not used for matching grant purposes, only the buyer’s funds are matched. Therefore the two must be factored separately. From the seller’s contribution @pearl069 can purchase 2.5 points. From @pearl069’s on personal contributions 6.25 points can be purchased max (at least according to her MC). The lender match grant will then match any remaining funds leftover after the maximum amount of points allowed have been purchased — @pearl069 had \$20,505 remaining after purchasing 6.25 points, which the grant will match for 5.25 points further bringing the rate down to 0.375%.

@pratik
the original poster @pearl069 said that she estimated taxes at \$470, which I assumed was per year. @pearl069 is the \$470 estimated a monthly tax estimate or yearly? HOA fee at \$125 and HOI at \$64 are monthly estimates, correct?

#44646
pratik
Member

Maybe I missed on taxes, but which county assess YEARLY tax rate of 0.125%? I would want to move there ðŸ˜€

As for numbers, I didnt mean to say who is right or wrong. Just ballpark values. The WIP calculator that I developed on excel sheet doesn’t have provision for lender match for priority members. I will add that feature at some point, but its getting busier by month at work and hard to find time to contribute as much as I want. I will be in and out though!

Pratik

#44647
Pearl609
Member

@southflorida, @pratik, @Jharris981 Thank you all for your responses!! I hate math and suck at the numbers thing (English major here lol) so I truly appreciate you all taking the time to crunch the numbers.

The taxes that my MC estimated (15%) is the \$470 a month in taxes not per year.
HOA is \$125 per month and HOI is \$64 per month as well.

#44651
JHarris981
Member

@southflorida — I forgot to mention that for CitiBank, points can only be purchased in 1/4 point and 1/8 point increments, but that is the lowest.
You can’t combine buyer, seller, and matching funds and then just divide by 1% of the loan value to come up with the total points allowed, that’s not the way it is calculated but it assuming that you could, the 14.36 figure that you’ve calculated would not be allowed anyway. You cannot purchase 14.36 points as .36 is not a denomination that’s allowed to be purchased.

#44652
JHarris981
Member

@pratik we actually have counties where I live where the yearly property tax is less than \$500. It’s great! ðŸ™‚

@pearl I’ve recalculated based on the fact that it was \$470 per month, not year. I’m not sure why you can’t purchase 7 points, it would bring your interest rate down even further. Try talking to the office manager to see why you’re capped at 6.25 points. In any event I got a monthly mortgage (all inclusive) of \$1702.99 based on the following info you provided:

Interest Rate: 0.375% (based on the formula I used in the posts above)
Purchase Price: \$375,920
Principal Reduction/Down Payment: \$20,505
Taxes Per Year: \$5640
Insurance Per Year: \$768 (\$64 per month x 12)
HOA Monthly Fee: \$125

Monthly Mortgage: \$1702.99 — http://www.mortgagecalculator.org is a nice site that lets you input all of the info to come up with a monthly mortgage figure. Hope that helps!

#44667
TTrumble
Member

Hello all,

Guys, I have to admit you have me chuckling a bit with your disagreement over whose figures are correct! You all do a great job in helping out other members here and even offline. Between the three of you though, you have given Pearl609 a good ballpark figure as far as what is going to be required.

Of course taxes and insurance can vary widely in different areas, which makes it even harder to come up with an accurate estimate without specific information for the home that is being bought. I’m not going to jump in the middle of this with my own set of numbers, just a reminder that it is all programmed into our Lynx system and the counselor will be able to provide the exact figures.

When a counselor says 6.5 points, 6.25 points, etc. instead of 7, he or she is taking a “shortcut” in subtracting the HAND and broker fees that must be taken from the seven points before it can be applied to the buy down, then rounding it off to a certain amount of points.

Also, don’t forget that when the buyer’s funds over the seven points reduce the loan amount, it also then reduces the dollar amount of each point being bought. So it can all start to get very complicated when you try to manually calculate buy down figures.

As long a Pearl609 now has a good idea of what is going to be needed, the exact dollar figures probably aren’t important until it’s time for the counselor to come up with the bottom line.

Tim Trumble
Online Operations, NACA
ttrumble@naca.com

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