Confused about buy down and monthly mortgage

Home Forums Purchase Program Confused about buy down and monthly mortgage

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  • #63166
    Nelsont
    Member

    @Futurehomeowercrew The monthly payment amount is P+I+T+I (PITI). The mortgage part is PI the taxes and insuance is TI.

    The only option at this time to buy a 310k house with a maximum PITI of 1383 is buy down to the max which will cost $15,500 (3100 x 5) AND THEN spend about $60,000 or more in principle reduction for a total of AT LEAST $75,000 or probably closer to 80 or 85k. This is money that will need to be in your bank account and included in your MRF unless your seller or family member is extremely generous. If you can do that then more power to you!

    I really don’t want to sound like a negative nancy but, are you able to look at houses in the 220-250 range?

    • This reply was modified 1 year, 11 months ago by Nelsont.
    #63171
    FutureHomeownercrew
    Participant

    Honestly, it’s really hard to find anything in my area worth looking at for 220-250. If anything decent homes start at 270k, which is a bit of a compromise but if I could even get that I’d be much more willing to settle for that purchase price.

    During the intake session according to my MC by putting 10k to the buy down raised my Purchase price from 233k to 261k with a 2.3% interest rate. I don’t know if this is accurate but that’s what they told me.

    #63172
    Peapod0609
    Member

    That sounds somewhat accurate, I think you would be closer to $255,000 but yeah. You can also check to see if there are any grants in your area that might help buy down interest and you can use your money for principal buydown.

    Are there any debts you can pay off? That will give you a better debt to income ratio and will increase that $1,383 number.

    #63173
    Nelsont
    Member

    Well yeah that sounds about right however you probably cannot get 2.3% right on the dot. The interest rate is 3.375 and usually only goes up or down in 0.125 increments. You can also only buy the rate down in 0.25 increments. So you could get a rate of 2.375 if the rate you get locked in at is 3.375. Right now it’s pretty stable. There have been times where it goes up or down 3 times in a week. So I would definitely look into the possibility of buying down plus getting your automatic 0.5% rate drop. If you get your seller to contribute 5% then you would be at the maximum without spending a dime of your own money to get there! Definitely worth a shot.

    #63174
    FutureHomeownercrew
    Participant

    @peapod0609 Besides my student loans which already have a pretty low payment since I’m using income-based repayment, I have no other debt. I think it’s more to do with my income. I have monthly gross income of 3900.


    @nelsont
    that is great to know and I definitely will take advantage of it for sure. That’s great to know the seller can contribute without me having to spend any or much of my money. I appreciate you breaking it all down for my brain to understand. 🙂

    #63176
    Peapod0609
    Member

    Ok, so really unless you make more money your only shot is to get as much buydown you can from yourself and the seller to raise your purchasing power.

    I got 5% of the purchase price as a seller contribution which I put towards the interest rate buydown, and I got the 0.50% automatic rate reduction grant for being under 80% of the median income in my MSA. I ended up at 1.625% interest.

    #63178
    FutureHomeownercrew
    Participant

    @peapod0609 that is such a great deal you got. I hope I’m able to come out in a similar way. Hopefully the home that I like the seller would be willing to contribute. Are there strategies to use to get sellers to agree, or is it just really up to the seller if they want to or not?

    #63179
    Peapod0609
    Member

    I mean, it is all a part of negotiation, ya know? Basically how I did it, is instead of lowering the sale price of the house I asked for contributions to my interest buydown. One thing with that though, you have to make sure not to screw yourself with the appraisal. When you go under contract, the bank will order an appraisal and the house must appraise for the purchase price or more of the house.

    For example, say you are looking at a house for $250,000. You could ask for 5% of seller contribution, which would net the seller $237,500 at the end of the day. This will lower your monthly payment more than simply asking them to lower the price to $237,500 with no buy-down.

    However, when it comes time for that appraisal, the purchase price is considered, not what the seller nets in the deal. Seller concessions do not change the list price. So it has to appraise in this case for $250,000 and NOT the $237,500 that it would have been had you just lowered the listing price. So there are pros and cons to each approach.

    At the end of the day, we lucked out. Our purchase price was $272,634 and our home appraised for $273,000. So we just BARELY made it! The seller net $259,000 as we got $13,634 in buy-down.

    • This reply was modified 1 year, 11 months ago by Peapod0609.
    #63291
    FutureHomeownercrew
    Participant

    @peapod0609 this is very helpful thank you so much. And that is fantastic! Do you mind me asking what your monthly payments turned out to be?

    #63292
    outrenthome
    Member

    @futurehomeownercrew I am trying to buy in Dallas. Here we have high property taxes (about 2.1%-2.3% of the home value) and high insurance rates (they go around $2,000 per month). I want my payment to be less than $1,500 and I plan on having $48,000 cash by next April to purchase a house. In order to keep the payment less than $1,500, the houses I can look at are those houses that cost less than $250,000. This is assuming I can buy 5 points to reduce the interest and that the interest remains the same at 3.375%. I plan up to $12,500 to go to interest rate buy down and the rest is to cover the minimum required fund, the movers, and ultimately the down payment.

    This is going to be my first home so I will have to suck it up I guess. You can get a remodeled house for that price here but it will be a house of about 1,300 square feet, at the outskirts of Dallas (but still within the city limit).

    I have not been really looking at houses yet because I am still in the process of becoming NACA certified. My mortgage counselor sent out our paperwork to the NACA underwriter and she said it may take between 7 to 10 days to hear back from the underwriter.

    • This reply was modified 1 year, 11 months ago by outrenthome.
    #63296
    Peapod0609
    Member

    Sure, my monthly payment ended up being $1,781.25 when it was all said and done. Without the buydown being done the way I did it, it would have been around $1,860 or so if we lowered the sale price to $259,000 with no buydown. Well over $2,100+ if we went through a traditional lender.


    @outrenthome
    you meant per year, right? That’s expensive at $2,000/year , but there is no way it is $2,000/month, lol.

    • This reply was modified 1 year, 11 months ago by Peapod0609.
    #63298
    outrenthome
    Member

    @peapod0609 Yes it’s per year ahah, so around $167 per month. It is expensive and I don’t really know why it is so much higher than average.

    #63300
    Peapod0609
    Member

    That is definitely a higher rate than normal, I am not sure why it is so high either. A lot depends on the area you live in, especially if it’s an area that sees a lot of floods, tornadoes, hurricanes, etc. But be sure to shop around. I got a great rate from Hippo, I recommend getting a quote from them when the time comes.

    And in case you guys are wondering when to do that, I would say once you submit your bank app you should be shopping for HOI.

    • This reply was modified 1 year, 11 months ago by Peapod0609.
    #73279
    TTrumble
    Member

    Hello outrenthome,

    That is an exceptionally high insurance premium, about three times what you find in a lot of places. You may want to review the policy declarations page with someone knowledgeable about insurance other than the agent who sold it to you. I’m a little concerned there may be things added to the policy that you don’t need.

    I realize rates vary from state to state, but that just seems excessive. Are you perhaps in a flood plain and legally required flood insurance has been added? Just make sure you didn’t buy something that you were told you “needed” by someone who “needed” a bigger commission check.

    Tim Trumble
    Online Operations, NACA

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