Finding out your monthly payment
There are mainly 4 things you need to find out to know what the potential monthly payment will be, you need to make sure that after adding these 4 amounts, the total is less than your PITI (Payment including Taxes, Insurance and HOA). The purchase price that you were approved for does not really matter because there are many variables like the taxes, insurance, HOA and interest if you are buying down the interest, because the more interest you buy-down, the more you can afford in purchase price, what’s important is that your monthly payment is less than the monthly payment you were approved for.
– Homeowners Association (HOA) if any
When you find a property that is in a priority area (you can check the map and filters of Zillow.com and look in the areas specified in the attached maps) you can go to Google and type “mortgage calculator” and enter the price and current interest rate on NACA’s website and you’ll get your mortgage payment including principal and interest. However, if you have some savings and you can buy-down the interest, you can enter the interest rate that you would be able to get if you can buy some interest points based on the interest buy-down explanation below.
As a buyer, you inherit the property taxes from the previous owner. Therefore, the lender will calculate your affordability based on what the previous owners were paying. Most likely, your taxes in the future will change but for now you just need to know how much the previous owners were paying. This information is usually included in the listing, just take the last year tax amount and divide it in 12 to get your property tax payment. If the information is not on the listing, you can get it from your county’s property public records online.
Any insurance company can quickly give you a quote on insurance but you can use an estimate depending on local prices, your realtor or MC can give you an idea.
Homeowners Association (HOA)
This is usually included in the listing
Qualification and Affordability
You can be approved for a monthly payment (including taxes, insurance and HOA) of up to 31% of your gross monthly income. However, this 31% combined with your minimum monthly payment obligations can’t be more than 40% of your gross monthly income. For example, if your monthly debt payments including car note, credit cards, student loans, etc are more than 9% of your gross monthly income, then you won’t be approved for the full 31% of your monthly income. For example, if your monthly debt payments (they only consider the minimum amount you have to pay) are 15% of your gross monthly income, the maximum you will get approved is 25% of your gross monthly income because both the mortgage payment (including taxes, insurance and HOA) and the monthly debt payments can’t be more than 40% of your monthly gross income.
If you would like to be approved for 31% of your gross monthly income and your monthly debt payments are not more than 9% of your gross monthly income and your monthly rent is less than 31% of your gross monthly income, you need to save the difference between your rent payment and 31% of your monthly income for about 6 months, that’s called payment shock and you need to save your payment shock every single month, if you don’t save that amount 1 month, the clock starts again. Saving your payment shock is not only to put that amount on your savings account every month, they will add the balances of all your bank accounts and the total balance has to increase by at least your payment shock.
You can decrease the interest by buying points of interest, each point will cost you 1% of the loan amount and it’s worth 0.25% in a 30 years loan and 0.50% in a 15 years loan. However, as a member you can buy a maximum of 7 points, but you can decrease the interest further with Seller concessions (contributions) which would normally be used to help you with the closing costs. However, since with NACA you don’t pay closing costs, if you get a seller contribution, those funds will be used to decrease the interest further.