Confusion about payment shock.

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  • #75259
    ericleap
    Participant

    I’ve been doing a lot of research on payment shock, and could only find information for individuals who are currently paying rent. I am currently living with relatives, and pay no rent. I’d like to get a head start for my intake appointment in July. I calculated 31% of my gross monthly income, and came up with $1360. The problem is, that I had an initial plan to knock out $5000 worth of credit card debt/ car loan by August. I’ve been making significantly higher payments than the required minimum to accomplish this goal.

    I was told that showing proof of saving payment shock would look better than paying down debt to the NACA MC. I am very confused on the payment shock method. I thought I could just throw the $1360 into a savings each month, but this isn’t the case apparently. How should I address my debt, and payment shock to get qualified sooner? I want have a head start on my intake in July.

    #75260
    Nelsont
    Member

    Payment shock is better viewed as total cash value. The formula is this: add up the account balance on the statement for every bank account you have for March. Do the same for April. Does that total equal 1360 more?

    Putting 1360 aside each month is fine but that’s not the point. Putting it aside only shows that you can afford the mortgage payment. It does not show that you can afford the mortgage without making sacrifices elsewhere.

    For instance let’s say you have 1000 in your checking and 1360 in your savings. Next month your savings needs to be no less than 2720 (1360×2) and your checking needs to be no less than 1000.

    The way the underwriters look at this is 2360 total one month and 3720 total the next. Follow? This means putting 1360 aside and having your checking dip below 1000 actually means you spent more than you saved in total. Because 2720 + say 900 instead of 1000 is 100 less than where you should be.

    The path you take can only be decided on by you with help from your MC. Paying down debt is always best. However if your current debt allows you to afford a mortgage payment you are satisfied with then you can focus on saving.

    Bottom line is if your debt is high enough you will never be qualified for your full potential until it’s paid off. So you need to choose. Get qualified for 1360? Or get qualified for say 1260? It’s up to you.

    P.S. if indeed your debt is high enough you can’t get 1360 until it’s paid off AND you want that full 1360 then getting a head start on payment shock won’t make a difference. Besides. You can use your debt payments in lieu of payment shock.

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