Interest rate buy down breakdown to a current client. 😁
3.5%/.25%= 14 points. This is the number of points you will need to buy down to .125% (1/8th of 1%, the lowest possible rate). If the house is 400k, each point costs 1% of the loan amount. = $4000 for 1 point. 14 points x $4000 = $56,000, the approximate number you will need to obtain .125%
Now, per HOEPA, you may only buy down up to 7 points with your own money, minus the $3000 broker fee through Bank of America. (This ends up being 6.25 points)
So that would be 7 x $4000 = 28k – $3000 = 25k, you may only use 25k of your money to buy the interest rate down in the first stage. Any further money may be put towards principle reduction to be matched by the lender.
So 25k / $4000 = 6.25 points. This alone gets you to around 2% interest rate.
14 points 6.25 = 7.75 points remaining to buy down.
If the lender puts forth 15k, that would be 15k/$4000= 3.75 additional points. 6.25+3.75= 10 points so far. You need 14, so 4 more to go.
The 4 remainder points will cost $16k, and this amount will go into the principle balance of the loan, to be matched by the lender. So a final loan amount of 384k, and interest rate of .125%
Now because this last 16k will lower the loan amount to 384k, each point will not cost $4000, it will in fact cost $3840, 160 less x 14 points = 2240 less. So in reality it should cost slightly less than 56k. Adding this into the mix will make this far more confusing than it needs to be. The bank will calculate this adjustment.
In short, you will need to buy the rate down 14 points. That will cost 56k (25+15+16). Out of pocket to you would be 41k.
Monthly payment (PITI) for this is around $1657, excluding any potential HOA fee. If there is an HOA fee, you can add it to this number. This is estimating $5300 for property taxes, and $1000 for home insurance.
still with me? 😂
How interest rate buy down through NACA can save you tens, or hundreds of thousands of dollars over 15 or 30 years.
The calculator below will give you an idea of the following: 1) Maximum Purchase Price based on your desired monthly mortgage payment; or 2) Monthly Mortgage Payment based on your desired purchase price. Your maximum mortgage amount with the NACA Mortgage combines the purchase price and any rehab escrow which cannot exceed the conforming loan limit of $484,350 in most areas and $726,525 in high cost areas with considerably higher amounts for multi-family properties. (DC, Maryland & Virginia is considered a high cost area.) Also, your income determines where you can purchase as per NACA’s eligibility requirements.
Click here to calculate the PITI payment with the interest buy down feature: https://www.nacalynx.com/naca/Purchase/purchase.aspx#oArticleCalc