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Unformatted text preview: any of those who either buy mortgages in the secondary market or insure conventional mortgages have set the maximum buy–down that may be used to quality the borrower as three below the rate expressed on the note regardless of the amount of the actual buy–down. In the current low interest rate era of the 2002s, this device is seldom used except in FHA/DVA discounting. 6-14 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 6: HARD MONEY LOAN & CONVENTIONAL LOANS
CALCULATION OF BUY–DOWN FUNDS
In this section we will review the methods that may be used to calculate the funds necessary to secure a temporary payment reduction for a client. One question that always is asked is who may pay the payment reduction funds? According to many lenders as well as the FHA and the DVA, the funds can be provided by anyone. Most lenders will not require a gift letter from the borrower if a third party should provide a portion of the buy–down funds. The buy–down funds are in addition to any other discount points or any other fee in connection with the loan. Now let us assume we are working with a client–either the buyer or seller–and that the client is interested in a buy–down mortgage. The mortgage amount will be $86,550 with a term of 30 years and an interest rate of 10 percent. First we will need to calculate the monthly payment for the mortgage at 10 percent. This can be done by consulting Appendix A and finding the monthly payment factor for a 30–year loan at 10.00. We then multiply the monthly payment factor, 8.7757, by the loan amount expressed in thousands or 8.7757 X 86.55 / 1,000 = $759.54 (P&l) This will be the amount of the P & I payment the lender will receive each month, irrespective of the amount the borrower pays. The second step is to calculate the interest rate the borrower will be paying for each of the 3 years. Year 1 of the buy–down is the note rate less 3 percent or 10.00 – 3 = 7.00 This will be the rate that will be used to qual...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.
- Spring '10