# How The NACA Bank Of America & Citi Mortgage Interest Rate Buy Down Program Works

The lowest possible rate for a BOA loan is indeed 0.125%. Citi loans may go to 0.0625%.

Anyone may buy down the interest rate. The only questions are with regard to how far an individual may buy it down as the law sets certain limits regarding how much the buyer or seller may contribute.

The BOA AND Citi buy-down programs work as follows:

— NACA Interest Rate Buy Down, HOEPA limitations and Participating Lender Grants —

1% of the loan amount (also called “one point”) reduces the borrower’s interest rate by 0.25% for a 30-year loan. One point reduces the borrower’s interest rate by 0.50% for a 15-year loan.

Example: Loan amount is \$120,000. Interest rate for the day of application is 4%
One point = \$1,200. Two points = \$2,400. Three points = \$3600 and so on. \$1,200 to interest rate buy down get to a new rate of 3.75% for a 30 year loan and 3.50% for a 15 year loan; \$2,400 to interest rate buy down gets to a new rate of 3.5% for the 30 and 3.0% for the 15; \$3,600 to interest rate buy down gets a new rate of 3.25% for the thirty and 2.5% for the 15, and so on.

The Home Ownership Equity Protection Act (HOEPA) limits the total points and fees which can be contributed by the buyer to 7% of the loan amount (7 points) total.

Points and fees limited to 7% for a NACA loan includes:

• Interest rate buy down paid by the Member. Included are third party contributions to the Member, i.e. grants and gifts paid to interest rate buy down on the Member’s behalf.
• The HAND fee – Files to Citi always – \$500. Files to Bank of America always 3% of the total funds held in escrow to complete repairs after closing.
• Broker fees the lender pays to NACA – Bank of America only – \$3,000

Note: Seller contributions to reduce interest rate are not included in the seven percent limit, however the seller is limited to contributing 10 points towards interest rate reduction (2.5% or 5% off of the interest rate).

Note: There is no limit to the amount that a NACA Member can contribute to reduce the loan amount (down payment, principal reduction). After 7% of the loan amount goes to interest rate reduction, the Member’s contribution will reduce the loan amount.

NACA Program Lender Grant: Low and moderate income Members qualify for a lender Grant thus the interest rate buy down is not limited.

Low and moderate income for purposes of the lender grant within the NACA program is defined as 100% or below the Metropolitan Statistical Area (MSA) median income for the area the Member purchases as documented by the Federal Financial Institutions Examinations Council (FFIEC). The website to check the median income for the NACA Member and determine what is the track median income for the property that is being purchased is:
https://geomap.ffiec.gov/FFIECGeocMap/GeocodeMap1.aspx

Note: The income used in determining lender grant eligibility is all income included on the bank application.

Bank of America Lender Grant Formula:

7% of the loan amount minus \$3,000 (loan origination paid by the lender) minus the HAND fee (3% of the amount held for repairs) equals the total maximum allowable Member contribution to interest rate buy down. For members that qualify for the grant, additional funds contributed will be diverted to principal reduction and the lender will match the amount in interest rate buy down. The interest rate can be bought down in increments of .125% (half points) to a final interest rate of .125%

Citi Mortgage Lender Grant Formula:

7% of the loan amount minus \$500 Hand fee when funds are held to complete repairs after closing equals the total amount of Member funds to interest rate buy down. For members that qualify for the grant additional funds will be diverted to principal reduction and the lender will match the funds in interest rate buy down. The interest rate can be bought down in increments of .0625% (quarter points/one-eighth points) to a final interest rate of .0625%

Example for Bank of America:

The Member is contracted to purchase a house for \$100,000. The starting interest rate is 4%. There is no escrow for repairs. The Member wants to put \$8,000 to interest rate buy down on a 30-year loan and is at 75% of the median income.

\$8,000 buys the rate from 4% to 2%

The maximum contribution to points is 7% or \$7,000.
For the 30-year loan, \$7,000 – \$3000 = \$4000 (\$4,000 is the highest amount the Member can put to interest rate reduction). \$4,000 of the Members money will go to interest rate buy down and the other \$4000 will go to principal reduction creating a new loan amount of \$96,000 rather than \$100,000. The lender will match the \$4000 and offer the final interest rate of 2%.

If in the same example, the Member was over 100% of the median income, the same \$8000 would result in a loan amount of \$96,000 but no lender grant match to reduce the interest rate so the final interest rate is 3.0%.

The same scenario for the 15 year loan, \$4,000 of the Members money will go to interest rate buy down and the other \$4000 will go to principal reduction creating a new loan amount of \$96,000 rather than \$100,000. The lender will match the \$3750 needed to offer the final interest rate of 0.125%.

If in the same example, the Member was over 100% of the median income, the same \$8000 would again result in a loan amount of \$96,000 but no lender grant match to reduce the interest rate so the final interest rate is 2.0%.

Example for Citi Mortgage:

The Member is contracted to purchase a house for \$100,000. The starting interest rate is 4%. There is no escrow for repairs. The Member wants to put \$8,000 to interest rate buy down and is at 75% of the median income.

For a 30 year loan, \$8,000 buys the rate from 4% to 2%

Seven points (\$7,000) from the Member can go to interest rate reduction. The eighth point (\$1,000) goes to principal reduction, and the lender contributes a matching \$1000 toward interest rate reduction. The loan amount will be \$99,000 with an interest rate of 2%.

If in the same example, the Member was over 100% of the median income, the same \$8000 would result in a loan amount of \$99,000 but no lender grant match to further reduce the interest rate so the final interest rate is 2.25%.

For a 15 year loan, seven points (\$7,000) from the Member can go to interest rate reduction. The eighth point (\$1,000) goes to principal reduction, and the lender contributes a matching \$875 toward interest rate reduction. The loan amount will be \$99,000 with an interest rate of 0.0625%.

If in the same example, the Member was over 100% of the median income, the same \$8000 would result in a loan amount of \$99,000 but no lender grant match to further reduce the interest rate so the final interest rate is 0.50%.