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 This topic has 9 replies, 4 voices, and was last updated 2 years, 8 months ago by frankysmom.

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January 20, 2019 at 10:23 pm #47311frankysmomMember
My husband and I plan to attend the next “Achieve the Dream” tour on the east coast. (Summer 2019?)
In the meantime, we have started the new year saving for what we believe will be the amount of payment shock for the type of home we interested in. If the next event Is indeed in June, will six months worth of payments shock be enough to demonstrate a pattern of responsible savings?
We are interested in purchasing a 2 family home with finished basement. We will have the financial assistance in way of mortgage assistance of 2 siblings who plan to reside at the dwelling.
Would their income effect the loan amount eligible? In other words, increase “buying power” Will both need to cosign in that case?
Would one or both siblings current rent payments serve as “proof” of payment shock affordability?
Lastly, would the information outlined in the NACA workbook be required for the siblings at the event?
Thank you so much for your help!
January 21, 2019 at 4:41 pm #47314southfloridaMemberThere is an event at Orlando, FL in February
January 22, 2019 at 12:03 am #47324frankysmomMemberThanks for the info, I should have been specific. We are planning to attend either the NJ/NYC or Philadelphia event.
January 22, 2019 at 4:44 pm #47336TTrumbleMemberHello frankysmom,
Your question regarding payment shock is actually a bit of a minefield, so I’m going to go into some detail just to make sure you don’t make a false step and your plans suddenly go BOOM.
Remember that determining the monthly payment on a multifamily is different than that for a singlefamily home. The part of the payment that comes directly from your own income is no different than that of a single family home. It may not be more than 31% of your gross income. Therefore your theoretical Payment Shock would be 31% of your gross income minus your current rent payment.
Also remember that Payment Shock is determined by looking at the grand total of all bank accounts each month, not just a specific savings account. The grand total must increase by at least the Payment Shock amount each month.
It’s always wise to add a couple of hundred to that each month if at all possible. These savings will also go toward building the Minimum Required Funds you will need, including funds for interest rate buydown.
It’s the part regarding the siblings that you are overthinking. Since they will be living in the other unit, simply treat them as any other renter. The fact that they are family does not mean that living in the other unit suddenly changes it from two households to one. Have them complete a standard lease that specifies the rent amout each month. 75% of the projected rental income can be applied toward calculating the qualified mortgage payment.
Therefore, if your current rent is $1200, 31% of your gross income is $1550 and rent on the second unit will be $1000, here’s what will happen:
Payment shock = $350 ($1550$1200)
Part of second unit rent applied to mortgage payment = $750 (75% of $1000)So,
Rent $1200
Plus shock $ 350
Rental income $ 750Total Mortgage payment $2300.
Hope that makes sense.
Tim Trumble
Online Operations, NACA
ttrumble@naca.comJanuary 24, 2019 at 10:02 pm #47363frankysmomMemberThanks Tim, I am a bit confused,
In your example, the 350 is counted as payment shock because the borrower that is how much more the borrower can afford to pay based in the 31% calculation. So it is *not* how much the borrower is actually putting aside extra each month in the “traditional” sense of payment shock? Is that correct?
Using my real life example, my husband and I based on the 31% calculation can afford to pay $959 a month yet we pay only 400 (a live in relative pays the rest). So the $559 difference would count as shock even though we are not literally saving that amount each month?
If that is indeed the case, if our accounts total increased by say $250/month, that too would count towards payment shock?
Lastly, is there a cap at the number of units in a multi family. In the case of a 3 family, it would be 75 percent of (rentÃ—2)?
559 + 250 + .75(rentx2) would be the amount we qualify for?
Thanks for your help.
January 25, 2019 at 2:36 pm #47373pratikMemberYou can’t count on a livein relative who pays the rest to pay part of your mortgage. You will be signing the mortgage paper work, putting yourself in line to borrow the money to buy a house. A lender will only provide you the loan if you can satisfactorily demonstrate that you will be able to pay the monthly installment of the loan, i.e., monthly mortgage.
For your specific example, $959 a month is the maximum amount of mortgage you can afford (31% of your combined income). How much are you paying in rent right now? How much are you saving every single month right now?
January 27, 2019 at 7:53 am #47389frankysmomMemberIt was stated above, we pay $400 a month in rent and are putting aside $250 a month.
Thanks
January 30, 2019 at 3:14 pm #47430pratikMemberSo, off the bat, if you prove through documents that you are paying $400 and putting aside $250 a month, you will be eligible for $650 in mortgage.
February 4, 2019 at 11:32 am #47478TTrumbleMemberHello frankysmom,
Payment Shock is the difference between your current rent and your desired mortgage payment. You must save that amount each and everey month wihtout fail to qualify for the desired mortgage payment.
In your example, $959 is the largest amount of the payment that could potentially come from your current income. To be able to qualify for that, you must save the difference between that and your current rent every month. It isn’t just some sort of theoretical figure. You must be able to prove that you can make that payment each month, which is why you are required to actually save the Payment Shock amount each month. Therefore you would have to save $559 every month to be able to qualify for the full $959 as the part of the total mortgage payment that comes from your current income.
Since you are only saving $250 each month, you will only be able to include $650 of your own income each month toward the total mortgage payment. ($400+$250=$650). To get the full $959, you will have to save $559 each month ($959$400)
You may buy up to a four unit property under the NACA program. You must live in one of the units, and 75% of the rental income from the other units can be applied to your mortgage payment amount as well. In other words, your three unit example of “559 + 250 + .75(rentx2)” would be correct based on your current income and savings pattern.
Tim Trumble
Online Operations, NACA
ttrumble@naca.comFebruary 13, 2019 at 7:03 pm #47577frankysmomMemberThanks, Tim.
One more question about this, how is the market value determined for the rental units, is it the median rent for the neighborhood as can be found on realty sites?
So a 3 bedroom unit would be higher value than a 2bedroom unit… or is it calculated all the same?

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