Sellers Assist, Buydown, Repairs ETC

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  • #62851
    vonny2421
    Member

    Hello,

    I am trying to understand how a sellers assist can be applied towards rate buy down. I have a sellers contribution of $19000

    The home does need repairs estimate was $40500
    Original offer $365,500 and my approved monthly payment is $2587.

    Current rate 3.375%

    I wanted to apply the sellers contribution specifically to rate buy down in addition to $7000 of my own buy down contribution (if needed) to increase my affordability to finance in the repairs. My MC is suggestion to just use the sellers contribution money towards repairs which is leaving me with a higher rate. I would prefer to take advantage of a lower rate, even though I know the overall loan amount will increase. In my purchase area this would still allow me to walk into the property with about $20-30K in equity post renovation.

    Per the naca calculator with the monthly payment of $2587, using $26000 towards buy down would bring my rate to 2.166%, included monthly tax rate of 24.5% for the correct monthly tax of 909, including 109 tax payment $426,218.

    To add in repairs would only push the loan to $405,500 which I was led to believe is the reason why I would want to use all this money towards buy down so that I can comfortably fit that value within my $2587 payment.

    MY MC is suggestion to increase the loan to $385000 by buying down the rate myself, and then put the sellers contribution for just repairs. I don’t think that’s benefiting me in the best way.
    Can someone please explain this to me.

    #62853

    I am not sure I completely understand, but the buydown dollars are of the same value whether you put them in or the seller does. HOWEVER there is a limit to the amount you are allowed to put down, and they are allowed to put down, for buydown – and those two limits are separate pools of money. You can contribute up to 7% of the selling price, and they can contribute up to 10%. Since neither of those limits seem to be reached in your case, I think this is a personal decision – unless I’m missing something. For me, I want to buy down the rate as low as absolutely possible because that pays off best in the long run. Dollars spent on rate reduction are three times better than dollars spent on principal reduction, or thereabouts. Hopefully if there’s some other issue at play here that I don’t know about one of the more experienced forum folks will chime in.

    #62855
    Nelsont
    Member

    All seller contributions are automatically applied toward rate buy down unless you reach the minimum rate or specify otherwise.

    As far as the rate buy down you cannot get 2.166% The rate only decreases in factors of 0.25% So at the current rate of 3.375% you can either spend $14660 to get a rate of 2.375% or $18325 to get a rate of 2.125%.

    Your MC has a good suggestion, if for nothing else, they can use anybody they want – the naca approved contractors are only required if you take on the responsibility yourself. If you have a chance to get a smaller loan you should take it. Plus would you rather buy a 400k for 400K or would you rather spend 385k on the same house? Instant equity in my opinion. The monthly figures are pretty equal if you use your money for buy down and the sellers money for repairs.

    #62856
    Nelsont
    Member

    @BakerTheBaker has a good point. In Maryland the numbers are even lower…3% total seller contributions and grants combined.

    Plus there is a break even point with rate buy down. Each quarter percent is only going to lower your monthly payment by about $30 or so which means in many cases you would need to live in the house for 7 to 10 years before you reach that break even point. I did it. But I plan on living there for a long time. People who consider this a starter home may not want to buy down based on that.

    #62859
    vonny2421
    Member

    Personally, whichever number factors the least amount of money out of pocket for me is what I am interested in taking.

    Nelsont can you explain those buydown numbers again?

    In the explanation my MC sent me she didn’t apply any of the sellers contribution to buydown at all.

    #62860
    vonny2421
    Member

    I am going to be taking on the repairs myself, and have had the work estimated by a NACA approved contractor and they have sent the estimate over to NACA Hand.

    #62861
    Nelsont
    Member

    Ok so you can buy down the rate in 0.25% intervals. Each 0.25% interval (or “point” in industry language) will cost you 1% of the loan amount. So at 365500 1 point is $3665, at 385000 1 point is $3885 and at 405500 1 point is $4055. Make sense?

    Since you can only decrease in intervals of 0.25 your 2.166% you said wanted cannot exactly be attained with the current rate at 3.375 (the current rate also only fluctuates in regular intervals, usually in factors of 1/8 percent or +/- 0.125). You can however buy 4 points to get the rate down to 2.375% or 5 points to get 2.125%. Those 5 points can come from you, the seller, or a combination of both. Still with me?

    Starting at 365500 and adding in repair costs, the lower the total loan amount the less money out of your pocket would be necessay to buy down the interest. So using your example of a loan for 405500, you would be buying points at a cost of $4055. If your seller made the repairs instead of contribute and you get a loan of 385500 then your points would cost you $3855. So, out of pocket, you instantly save $200 per point by doing the way your MC advised. If you wanted to put $7000 toward buy down that’s right in between 1 and 2 points. You would need to buy 2 points at a total cost of $7710 or $8110. A loan of 385500 would cost you $7710 to buy 2 points which is $400 cheaper out of pocket than rolling the whole project into your loan of 405500.

    Now if the house needs 40k worth of work there are 3 options: seller pays for it, you pay for it or a combination. If you ask the seller to contribute so you can pay for it then you are becoming responsible for the repairs. If the seller is willing to contribute anything you are better off getting them to be responsible for repairs. This would give you an out if you needed to walk away from the contract.

    #62863
    vonny2421
    Member

    The house is an estate sale, as the homeowners mother passed leaving her the house. She’s in florida so she wont be making any repairs.

    Purchase Price: $385,000 at the interest rate of 2.75% (Offer 365,000 ) + 20,000 in Repairs Additional $25,000 of seller contribution will go towards repairs. Your Monthly PITI : $2587 Monthly Taxes = $10,912/909 Monthly Insurance = $1274/106 BUYDOWN COST = $ 9625 to buy down the rate from 3.375% to 2.75% = 2.5 points

    This was the original, I’m trying to understand the updated value if the seller contribution is reduced to $19000 and repairs are ony $40,500. With my additional buydown of $7000.

    #62865
    pratik
    Member

    Hi @vonny2421,

    I do not understand if your numbers are right:

    Current rate: 3.375%
    Rate after buydown: 2.166%

    So,
    Difference: 1.209%
    Points (0.25%/point): 4.836
    Amount for buydown: 26,000
    Property price: 537,634

    This property price is considered for Jumbo loan and therefore not something you can buy through NACA.

    Tax rate of 24.5% does not make sense either.

    Can you clarify?

    Disregarding, here is the thought: If you are below median and have saved money for buydown, any amount that you put in above 6.5% will be matched by the lender. In other words, If you put in, say, 12 points, the bank will put (12-6.5=) 5.5 points towards down payment of your home and your rate will be (3.375 – 12/4 =) 0.375%. So, I agree with your MC that it would be prudent to use the funds originating from seller towards repairs and put your funds towards buydown, as any additional point above 6.5 will be matched by the lender towards down payment. Now of course if you are a non-priority member, you will be limited to 5 points (or so I heard).

    Above is ball park qualitative estimate for your understanding. Final numbers might be slightly different.

    Cheers,
    Pratik

    #62866

    Wow @nelsont, I didn’t know about that 3% limit in Maryland. That’s a game changer for us in terms of the grants when the seller is already giving us about 1.8%. Oof.

    #62867
    Peapod0609
    Member

    Well my opinion is, if you’re going for the lowest monthly payment, put it all towards interest rate buydown if you can. You will get the lowest monthly payment if you buy down the interest rate, buying down $19,000 worth of interest will lower your payment more than the seller reducing the price by $19,000, for example.

    You also have to consider the appraisal price as well, since the home must appraise for the purchase price or higher. I know this changes slightly if there are renovations included, but if you’re confident the home will appraise for what it needs to then I suggest lowering that interest rate as much as you can, if you plan on staying in the home for a while.

    You said you wanted the least amount out of pocket. If you were referring to buying down the interest, I’d put it all (it referring to the seller contribution) towards buydown. That is going to give you the lowest monthly payment.

    #62868
    vonny2421
    Member

    Pratik,

    By 24.5% i’m going by the tax rate per the NACA calculator, the monthly property taxes are 909 a month. I am not seeking a jumbo loan, and I know once putting that 909 a month into the NACA calculator that brings the price down quite a few thousand dollars. I got the 2.166% from the NACA calculator, thats what it gave me when I entered by desired buy down amount.

    I am not planning to put down 6.5% of buydown with my own money, so putting down 12 points is not in my interest at all or within the scope of money that I want to spend on this purchase.

    I’m willing to put down between $7-$1000 in collaboration with the sellers $19000, repairs are estimated at $40,500.

    #62872
    vonny2421
    Member

    Peapod,

    Thats exactly what I’m trying to do, use the full sellers contribution towards buy down. I’m trying to understand why my MC isn’t suggesting I do that, in addition to my own buy down. I’m not asking the seller to lower the price, as I know thats not as beneficial as the $19000 sellers credit.

    #62873
    Nelsont
    Member

    The NACA calculator is wrong…use the actual numbers provided by any listing site such as zillow or redfin. The highest taxes in the country are around 6% and that’s in upstate new york, chicago and parts of california. Otherwise you are probably looking at 1-3% or somewhere around 500/month in taxes. Your 10000 number sounds more like a yearly tax bill…other members on here have had that same issue realizing they were way off. Your monthly insurance will probably be around $100. Your 1274 figure is on the very high end of most yearly figures.


    @bakerthebaker
    ask your agent. things could have changed.

    • This reply was modified 2 years, 8 months ago by Nelsont.
    #62875
    vonny2421
    Member

    Im located in Long Island, NY the yearly taxes per county website and MLS from my realtor are $10911.00. I had the insurance quoted and it was $1274. So these are actually numbers given to me.

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