Cash Advantage Reserve

You submit a cash offer, no contingencies, and negotiate the final price you wish to pay.  You complete all the inspections, and my power buyer service completes the cash purchase in their name, “reserving” the home for you.
Move into your new home.  Get your departing home on the market.  You’ll purchase your “reserved” new home back from Cash Advantage on the day of your departure sale.

Cash Advantage Signature Loan

You submit a cash offer, no contingencies, and negotiate the final price you wish to pay.  You complete all inspections, and my power buyer service will advance you a loan to finance up to 95% of the funds needed to purchase the home.  You supply the remaining 5% and close with cash in your name.
Move into your new home.  Get your departing home on the market.  You’ll re-finance the signature loan into a traditional loan that aligns with your home loan goals.

Equity Advance

You’ll submit an offer with financing for new home but WITHOUT a sale contingency.  Equity Advance will advance up to 75% of the equity in your current home for use toward purchasing your new home.  Further, Equity Advance guarantees to buy departing home at that 75% value amount if home does not sell in 120 days.  Thus, allowing you to qualify for your new home without accounting for the mortgage payment on the departing home.

How Much Does It Cost to Use Any of the Buy Before You Sell Programs?

• The Cash Advantage Reserve program fee is 1.9% of the new home purchase price and a Deferred Occupancy Cost (rent) is calculated for the period between Move In and Buy Back. 
• The Cash Advantage Signature Loan program fee is 1.9% of your loan amount.  Interest will accrue on the loan.  
• The Equity Advance program fee is 2.4% of your departing home sales price.  Collected when departing home closes.  No other costs or payments.

Is There a Deposit to Use Any of the Buy Before You Sell Programs?

• Both the Cash Advantage Reserve and Signature Loan programs require a deposit:

  • Sales price to $1,000,000: 2.5% of new purchase price to be paid at time of contract acceptance.
  • Sales price > $1,000,000: 4.0% of new purchase price to be paid at time of contract acceptance.
    • If using the Reserve program: At time of buy-back, the program fee of 1.9% and the DOC expense are netted out of the 2.5% (or 4.0%) deposit.
    • If using the Signature Loan program: At the time of refinance, the program fee of 1.9% and accrued interest are netted out of the 2.5% (or 4.0%) deposit.

• Equity Advance does NOT require a deposit.

  • If using the Equity Advance, most homeowners complete a RECAST of their loan because the Equity Advance does not provide you with all the equity in your home. A “recast” of your loan is when a large principal curtailment is paid post-closing. The promissory note is amended to bring the P&I down to match the new lower loan amount. The cost runs from $200 to $300 per loan servicer, and the process takes about 45 days.

The most prominent entities offering down payment assistance are

Colorado Housing and Finance Authority, known as CHFA
Colorado Housing Assistance Corporation, known as CHAC
The Chenoa Fund

All through out Colorado, many individual counties provide assistance for residents of that county, however, these individual county assistance programs may have significantly tighter restrictions with fund availability than the three programs listed above. Not all counties are listed, however, Kathy Nau has had personal experience with these three assistance organizations.

City of Aurora, Home Ownership Assistance Program, known as HOAP
Douglas County Housing Partnership
Yampa Valley Housing Authority

Common forms of assistance include

• Grants: Some programs provide an outright gift of money. Currently CHFA and Genoa are offering a grant. The dollar amount of the grant is lesser than the dollar amount of the loan.
• Zero-interest, deferred-payment loans: Terms and conditions vary, but generally no payments are required on the 2­­nd mortgage loan provided to help offset the down-payment and settlement-costs. Loans are not due until the home is sold, the mortgage is refinanced or the mortgage reaches the end of the term.
• Low-interest loans: The loans must be repaid over a certain period, such as 10 — 30 years. They make homeownership more attainable by spreading the down payment and closing costs over multiple years.

Who can get down payment assistance?

Requirements for down payment assistance programs vary, but typically you must:

• Take a home-buyer education course.
• Meet income limits. Many programs are geared to low- and moderate-income residents, so a borrower’s household income must be below a certain threshold.
• Purchase in an approved location.
• Stay below the maximum home purchase price, which is usually a percentage of an area’s median home purchase price.
• Contribute some of your own money toward the purchase.

How to apply for mortgage down payment assistance

When you apply with Kathy Nau for your first mortgage loan, she and her team will coordinate the assistance program on your behalf.

How do you temporarily buy down a mortgage rate?

A temporary buydown reduces the home buyer’s monthly payments in the first year, or sometimes in the first two or three years. Instead of making the mortgage’s full monthly payments from the get-go, the home buyer will make discounted payments for a year or more.

This is accomplished by subsidizing the interest rate that the borrower pays. For example, let’s say a buyer gets a mortgage at a 7% interest rate, with a one-year buydown.

• Because of the buydown, the monthly payments in the first year are based on a 6% interest rate before rising to 7% thereafter.
• If the borrower got a $300,000 mortgage in this hypothetical example, the buyer’s principal-and-interest payments in the first year would be $1,799 a month, before rising to $1,996 a month in years 2 through 30.
• A buydown under these terms would save the borrower about $197 a month in interest in the first year, for a total of $2,367.

Traditionally, most temporary buydowns are paid for by home builders and home sellers as a closing cost equal to the buyer’s interest savings. In the example above, the buyer saves $2,367, and the seller deposits that amount into an escrow account at closing. The loan servicer draws from the account every month to make up the difference between the full loan payment and the discounted pmt the homeowner is paying.

What the buyer gets out of it

Temporary Buydowns were designed to ease the buyer’s transition into their new mortgage, at a rate/payment that is lower than the rate offered without a buy down.

Nowadays, temporary buydowns appeal to first-time home buyers who are shocked by the speed at which mortgage rates have risen, and who will deplete their savings on the down payment and closing costs. The temporary payment reduction allows borrowers to replenish savings or spend the money on home upgrades.

Buydowns can last longer than one year, allowing borrowers to extend their savings:

• A 2-1 buydown reduces the interest rate by two percentage points in the first year, then by one percentage point in the second year, before rising to the full rate after that.
• A 3-2-1 buydown lasts three years, with the interest rate reduced by three percentage points in the first year, by two percentage points in the second year and by one percentage point in the third year.

What the seller gets out of it

Buydowns paid by the seller may entice a buyer consider that seller’s home. A seller may offer a buydown instead of dropping the price.

Negotiating A Buydown

Either side can suggest a buydown. The seller can offer one proactively, as a competitive tactic. The buyer can request one as a Seller’s concession.

The lender must qualify the borrower at the full interest rate, which requires the lender to determine that the borrower can afford to repay the loan after the rate reductions have run out.

Government-sponsored mortgage companies Fannie Mae and Freddie Mac impose limits on seller concessions, including temporary buydowns. Limits vary, depending on down payment size.

Fannie and Freddie also restrict temporary buydowns to a maximum of three years. And to soften payment shock, the effective interest rate can go up only one percentage point each year. So the borrower’s effective rate can’t jump from 5% to
7%; it would have to go from 5% to 6% for a year before settling at 7%.

How Buydowns Differ From Arms

A temporary buydown resembles an adjustable-rate mortgage(ARM) because the borrower starts out making payments at one interest rate and later makes payments at another interest rate. But a buydown is not an ARM.

A key difference is what happens with the interest rates. On an ARM, the interest rate and the monthly payments can change periodically for the life of the loan. With a buydown, the interest rate never changes. Instead, the seller (or sometimes the lender) pays part of the borrower’s interest payments in the first year or two or three, but the underlying note rate remains the same.

How Buydowns Differ From Discount Points

Paying discount points is a way to permanently reduce the interest rate, and therefore the monthly payments. Sellers can pay discount points as a sales incentive. But with discount points:

• The monthly savings are less. Paying one discount point — equal to 1% of the loan amount — typically reduces the interest rate by about one-quarter of a percentage point.
• Even though the monthly savings aren’t much to boast about, the cumulative savings can be substantial over several years.
• It usually takes six or seven years of regular payments for the accumulated savings to exceed the upfront cost.

In contrast, the buyer’s savings from a temporary buydown equal the seller’s upfront cost in one to three years.

What If i Refinance My Loan Before I’Ve Used All My Buydown Funds

The funds held by the loan servicer in the buydown escrow account are refunded and credited to the payoff at the refinance closing. So you never lose the buydown funds when paid for by the seller!

Lock And Shop

What does it mean and who can do it?

With rising interest rates, Lock & Shop allows you to determine your interest rate first, then take some time to go shop around for a home.

How does Lock & Shop work?

Without having a property identified, you can choose from one of two lock terms: a 60- day rate lock, or a 90-day rate lock.

If you opt for 60 days, you will have 30 days to shop. if you choose the 90-day option, you’ll have 60 days to shop. This helps you avoid any extension fees, and gives the lender time to process things on the back end.

The Upside and Downside of Lock & Shop

Rate Protection

The biggest perk of our Lock & Shop program is the peace of mind in knowing your mortgage rate is locked in. If the market rate goes up while you’re house hunting, your mortgage will not be affected.

Take Your Time Finding Your Dream Home

The Lock & Shop program is ideal for anyone who knows they will be moving or buying a house, but hasn’t picked their new home yet. It’s no secret, there can be some uncertainty when it comes to mortgage interest rates. The last thing we want Is that to deter a future homebuyer from making their move, or for them to feel rushed into choosing a house because they don’t want to worry about a higher interest rate.

The Downside of Lock and Shop

You are narrowed to a 30 day window (on the 60 day lock) to find, negotiate and then contract on the new home. And rates may have dropped in the time period from when you locked to when you locate the new home.

If you choose to lock on a rate after you contract, you’ll likely lock for 30 day period since most transactions close within a 30 day window. A 60 day lock results in a slightly higher rate than a 30 day lock. A 90 day lock is a slightly higher rate than a 60 day lock.

Thus, the upside of Lock & Shop is rate protection in a rising rate environment. The downside of Lock & Shop is that you are limited to a narrow shopping window. And it’s possible to get a lower rate on a shorter lock term.

Long Term Locks

A long term rate lock, aka, extended rate lock is for purchase transactions only and can lock in an interest rate for as long as 12 months.

An extended rate lock is an especially great tool for new construction home loans.
Extended rate locks will “lock in” an interest rate and protects the homeowner from the potential of higher rates in the future. Most lenders require an upfront deposit to be paid at the time the loan the long term lock is placed.

Rate Locks Expire

All locked interest rates have expiration dates. When the lock expires, the rate is no longer valid.

Rate locks are typically based on 15-day intervals and measured in calendar days. “Normal” rate locks are typically 30 to 60 days. A rate lock can be as short as 15 days or as long as 90 days.

As an FYI, the rates shown on advertisements are typically 30-day locks.

Extended Rate Locks Explained

Extended rate locks are different than “normal” locks. Most notably, these locks require upfront money, might have a rate cap, and offer the option to “float down” the rate before closing. Float down means that if interest rates drop significantly lower than the locked rate as the closing date nears, most lenders will allow a float down to a lower rate at that time.

Since the market is always shifting, inquire with Kathy Nau on current market conditions relative to long term locks.