PRINCIPLE REDUCTION??

Home Forums Purchase Program PRINCIPLE REDUCTION??

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  • #78297
    1goldenjewel
    Participant

    Hello,

    I am almost at the finish line. However, I am a bit confused about Principle Reduction. I would like to know if it is mandatory to pay. On my NACA AFFORDABILITY FORM my monthly payment isn’t to exceed over 1,174 per month. My MC says my Principle reduction is 15k to keep my mortgage under 1,174 but when I did my calculations on the Mortgage calculator I did the calculations without adding my Principle Reduction (the 15K) I included my taxes and my Homeowners Insurance and my Monthly mortgage payment is 1,128 which is still less than 1,174!! So my question is do I have to pay the principle reduction? 15K is alot of money. I am already buying down the rate and paying $10,700. I am trying to save as much money as I can due to me being a single parent with 3 children. Can someone please tell me how the principle reduction works and can I opt not to pay that since my mortgage payments is under 1,174? Please help. I am just curious because 15k is alot of money to pay and to only have a 54 dollar reduction in the Monthly mortgage. Please let me know my options if any. Thank you so much in advance.

    #78299
    1goldenjewel
    Participant

    Here is a break down of the actual figures for clarity: Loan: (252,765k – Principle Reduction 15,000K) = a LOAN of 237,765K with a buy down rate of 1.75 and it brings my monthly estimate to $1074 with taxes and homeowners insurance included. —— My calculations without paying the Principle reduction of 15K. Loan: 252,765k with a buy down rate of 1.75 and it brings my monthly estimate to $1128 which is only a 54 dollar difference if I pay the 15K. I would much rather pay the buy down of $10,700 and the other fees versus. a total of 25,700k..Please advise if the Principle reduction is mandatory.

    #78300
    Kristijay
    Participant

    First question is are you priority or non priority? Secondly, did your MC tell you your max buydown amount? There is a max anywhere from 4-6 points depending on your loan amount. Thirdly, what zip code are you looking to purchase in and what numbers are you using for taxes and insurance? And lastly, is there a HOA fee?

    The principal and interest alone on a $252,765 home with a 1.75 interest rate is $903 dollars. Your taxes and insurance would have to be $225 to get a payment of $1128 which is very low depending on the area you are looking to purchase.

    #78301
    netnuevo
    Participant

    Please keep us posted, @1goldenjewel!

    #78303
    1goldenjewel
    Participant

    Hello,

    Yes, I am priority and my MC said my maximum buy down rate is from 2.5 to 1.75 and the total amount I have to pay is $10,700. I am not sure exactly how points I am buying down but 1.75 is the lowest she said I could buy down too. I am in South Carolina. My tax estimate is $145 per month and my Homeowners insurance is already established that it will be exactly $80 per month.

    #78305
    Kristijay
    Participant

    @1goldenjewel I would clarify with your MC how many points you can buy down because the final interest rate is dependent on the NACA rate when you enter the mortgage process and submit your bank app. Today’s Rate is 2.625 and each point subtracts 0.167 from the rate. Rate fluctuations will affect your buydown and principal reduction.

    #78306
    1goldenjewel
    Participant

    Hello,

    My MC did confirm that my rate should remain because I am already under contract. However, my question wasn’t about the rate because I am willing to buy down to the lowest possible. My question is finding out if the Principle reduction is mandatory or optional? I just would hate to pay 15k and my mortgage is only reduced by $54. I have not received a response from my MC, so I came here. I hope this makes sense.

    #78307
    1goldenjewel
    Participant

    Oh and I’m sorry I missed your question about HOA fees. That particular subdivision does not charge any HOA fees.

    #78309
    Kristijay
    Participant

    I understand, but your rate doesn’t lock until you get to mortgage process now. Do you have a commitment letter? If the rate has gone up since you went under contract and you haven’t made it to the bank that could be the reason you would have to do a principal reduction in addition to buy down.

    #78310
    Nelsont
    Member

    Neither principle reduction nor buy down is ever required unless the sale price is above your budget.

    Principle reduction will also almost never be suggested unless you are maxing out the buy down.

    What you need to do is have a conversation with your MC and ask if they can break out the math for you line by line and explain how they came to their conclusion.

    Another thing you can do is ask your real estate agent about seller concessions. Sellers often offer closing cost help and some agents ask for it regardless of whether the seller offers up front. This closing cost help is automatically applied to buy down and the seller is allowed to contribute up to 10 points on top of your 4 to 6.

    #78312
    1goldenjewel
    Participant

    Hello,

    Okay I understand, I was not aware of the rate not locking in until you get to the mortgage process, as I was informed differently from my MC. I am currently in the Bank Submission phase. That part is red when I log into my NACA account. I don’t have a commitment letter. & My Mc told me my Principle Reduction was 15k via email. The rest of the information I saw on the Uniform Residential Loan Application.

    So, you are saying that if the rate goes while I am under contract, that is possibly the reason why I am paying a principle reduction? I am so sorry, I still do not understand. Please forgive me, maybe I am having a delayed moment with my process of comprehending lol. Is there any way you can explain exactly how the Principle reduction works and if it’s mandatory. I have looked in the NACA handbook and everywhere possible online and can’t seem to find any information on it. I just want to know the reason I paying it and if it is mandatory or optional. I do really appreciate you taking the time out to respond to all of my questions.

    #78313
    1goldenjewel
    Participant

    Please disregard my last statement! As I did not refresh my screen to have received the last comment. Thank you for your clarity, I will do as you mention. Thank you all for the help and advice especially on a Saturday. I really do appreciate it.

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