Reserves and Minimum Required Funds Question

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  • #36022

    My wife and I were approved for a maximum of 417k, however we would prefer to buy a house in the 250-275k range.

    My MC was gracious enough to run us though different price point scenarios.

    Assuming a 15% tax rate and $300 inspection fee, for a 30-year mortgage in our area:

    Mortgage payment: 2,444
    Price: 417,000
    Payment shock: 1,179
    2 months’ reserves: 4,888
    Total minimum required funds: 8,102

    Mortgage payment: 1,800
    Price: 304,869
    Payment shock: 535
    2 months’ reserves: 3,600
    Total minimum required funds: 6,232

    Mortgage payment: 1,600
    Price: 270,129
    Payment shock: 335
    2 months’ reserves: 3,200
    Total minimum required funds: 5,832

    Mortgage payment: 1,400
    Price: 235,389
    Payment shock: 135
    1 month’s reserves: 1,400
    Total minimum required funds: 3,672

    Is the Minimum Required Funds a combination of the pre-paids, earnest money, inspection fees, evaluation fees and the month reserves?

    Or is the MRF separate from the monthly reserves ?

    For example: Using this scenario from above

    Mortgage payment: 1,600
    Price: 270,129
    Payment shock: 335
    2 months’ reserves: 3,200
    Total minimum required funds: 5,832

    My question is:

    Will we need to have a total of at least $5,832 dollars in the bank or do we need to have $5,832 (MRF) + $3,200 (Reserves) = $9,032 in the bank ?

    -CCG

    #36023
    TTrumble
    Member

    Hello Cali_Cool_Guy,

    According to your Home Buyer’s Workbook: “Minimum Required Funds (“MRF”) are funds the Member must have available to pay costs associated with the property purchase, pre-paids at closing and a reserve for costs once you close.”

    Therefore the reserves are included in the total MRF amount given to your by your counselor. In the situation you describe, $5,832 is the amount you will need. (However, this does not include any funds you are planning to use for interest rate buy down.)

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    #36024

    Thanks Tim,

    This definitely adds clarity as we work to towards being NACA qualified !

    -CCG

    #36027
    rcg8584
    Member

    @Cali_Cool_Guy,

    Also remember that your MRF is used to pay for things after you place an offer like earnest money, inspections, etc. So if your local market typically requires a higher down payment or has high inspection costs you may need to budget for more.

    Also you may want to check how property taxes are calculated in your county. I was under the impression that I would only have to cover 2 or 3 months of taxes at closing, but will end up having to put 10 months of taxes in escrow. Also any buy-down you are planning to contribute needs to be shown in your accounts at time of bank application. All of this to say, “save, save, save”! It is better to have more stashed away than not.

    • This reply was modified 4 years, 9 months ago by rcg8584.
    #36185
    pratik
    Member

    @cali_cool_buy,

    Sorry for trolling, but here is a thought for you (I do not know your affordability, but just consider this option if you somehow can):

    Your original posting says, for 30-year mortgage at 3.5% rate:

    Mortgage payment: 1,600
    Price: 270,129
    Payment shock: 335
    2 months’ reserves: 3,200
    Total minimum required funds: 5,832
    INTEREST PAID ON THE LOAN IN FIRST TWO YEARS: 18,559

    Have you considered that buy-down amount of 15,194 on this property (5.625 points, assuming 2.875% base rate) for 15-year mortgage would bring the rate down to 0.0625%?

    Mortgage payment: 1,895
    Price: 270,129
    Payment shock: 630
    2 months’ reserves: 3,790
    Total minimum required funds: ??6907??
    INTEREST PAID ON THE LOAN IN FIRST TWO YEARS: 316

    So basically you will be paying 295 extra for 15 years and finish your loan (in other words, 1895 monthly for 15 years of 1600 monthly for 30 years). Of course 15,194 is a biggie, but someone from your friends and family can “gift” this money to you. If you have to pay back, you can pay it back in 2 years and still put ~3000 in your pocket (which already takes care of 10-months of your 300 extra!!!).

    Best wishes!

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