Payment Shock

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  • #67109
    padgeta2
    Participant

    Hi, I have saved up my 6 months of payment shock (because I don’t currently pay rent), but some months I saved more than others due to tax returns, gifts, buyouts from employer, etc. Is this acceptable payment shock funds or does it have to be the exact amount over the course of exactly six months?

    #67110
    Nelsont
    Member

    Payment shock is a minimum. More is better. It also cannot be averaged. But remember it cannot stop until you close on your house with 2 exceptions:

    Paying down current debt instead of saving payment shock i.e. zeroing out your credit cards or car loan in order to decrease your monthly obligations

    One time emergencies

    • This reply was modified 1 year, 6 months ago by Nelsont.
    #67112
    padgeta2
    Participant

    So, even though I have $6000 saved, if I didn’t save up $1,000 over six months, that won’t be sufficient?

    #67114
    Nelsont
    Member

    Your payment shock is the difference between your current rent and your approved monthly piti. If the difference is low or negative (higher rent than a piti you are approved for) they recommend at least 200/month in payment shock. If you don’t pay rent your payment shock will simply be the piti you are approved for.

    Payment shock is not a value/goal you are trying to reach. It is a pattern you are trying to establish by first showing history then showing the ability to maintain the pattern through the home buying process.

    If you have 1000 in the bank and your payment shock is 500 then after 1 month the total of all of your bank account statements (think of it as net worth or total liquid assets) must be at least 1500. The next month it must be at least 500 more than the previous month. And so on until you close.

    If you have 1000 with a 500 payment shock and save 1000 then the total ending balance on your bank statement must be at least 2000. Then the next month your total ending balance must be at least 2500.

    It really depends on what your payment shock is. Just look at it this way. It doesn’t matter how much you have saved in the past as long as you hit a minimum every month. Any extra is simply extra and can be applied toward your mrf.

    Make sense?

    #67115
    padgeta2
    Participant

    It does make sense, but I’m concerned it will now take me six months to qualify. My Payment shock will be $1200. I don’t currently have a rent payment. I have saved up 6 months worth of payment shock, but it wasn’t $1200 each month. Even though I have $7200 saved up, I’m worried they will make me start all over again and it will be six months before I can qualify. I understand having to keep up the savings between now and closing, I just don’t want it to mean I can’t even qualify for six months 🙁 That’s so disheartening!!!

    #67118
    Nelsont
    Member

    Somehow you need to prove you can afford a $1200 payment. They don’t accept a verbal commitment to decreasing debt or changing your lifestyle. They want to see that you can afford the mortgage today on your current lifestyle without making concessions. So if you can afford 1200 and aren’t paying rent but aren’t saving it either then where is it going and how do they know you aren’t going to default on your loan? That’s what they are going to ask.

    #67121
    padgeta2
    Participant

    Thanks for your response and help! LAST Question– I promise– Since it appears I still need to save the payment shock for at least four months, is there any chance NACA can give me an estimate of what they think I’ll be approved for mortgage wise? Four months is a long time to wait to even qualify, but if they are willing to tell me what they think I”ll qualify for, it might outweigh the waiting! Hope that makes sense!

    #67122
    Nelsont
    Member

    Absolutely! And this forum is for questions so don’t feel like you have too many. The answer to your question will printed out on an action plan for which you will receive a hard copy at your first intake session.

    Generally speaking you are approved for 31% of your gross income.

    Your monthly payment plus other debt cannot exceed 40% which means your other debt cannot be over 9%. If it is then your 31% approval is decreased by an equal amount. So 12% debt equals a 28% maximum monthly payment.

    The only exception is if your current rent is higher than 31% but even then you can’t get approved for more than 33% and I think your debt has to be very low to meet the 40% total rule.

    Your gross income is taken from base pay only. Overtime cannot be included unless you can get your employer to write a letter on company letterhead explaining the overtime is essentially mandatory for the foreseeable future. Personal bonuses follow the same rule and would result in the averaging of your last 2 w2s. Company bonuses are ok if they occur every year.

    Part time income can always be counted toward mrf but only counts toward your approval amount if you have 2 years of w2s.

    You need 2 years of w2s for all employment.

    Hopefully this helps you out.

    • This reply was modified 1 year, 6 months ago by Nelsont.
    #67124
    padgeta2
    Participant

    It definitely helps! Thank you! I know NACA prides themselves on case-by-case situations, do you think there’s a chance I could qualify before the full six months payment shock has been saved, but not close yet? Also, do you know how quickly I may be able to get an intake session since they are all virtual now? I’m located in Columbia, SC! I did the HBW yesterday! And I have already purchased one home through NACA several years ago, but I had to relocate for a job!

    #67125
    Nelsont
    Member

    There are hard and fast rules and payment shock is one of them. The case by case exceptions are for smaller details like whether a bonus can be counted as income or whether paying rent by cash is ok.

    The wait time for an intake session is completely dependent upon the workload of your local office. The virtual sessions and lock down to my knowledge has had no effect to this. Typical wait times are 1 to 2 months. Some busy mega cities might have a 6 month wait. You should have been given the opportunity to sign up for an intake during the workshop.

    And if you have already purchased a home through naca you should be an expert! We all look forward to hearing about your journey!

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