Preparing to Buy a House

Payment Shock - a method for preparing future homeowners or tenants for higher monthly housing costs.

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Who this benefits

It is great for those who:

• recently renewed their lease 

• live with family or friends and pay $0-$800/month

• can afford a mortgage higher than their rent payment 

An example of how it works 

You're preparing to buy a house and currently rent in the amount of $1,100. After your intake with me, we determine that your debt to income ratio allows you to afford a mortgage of $1,500. I show you the homes available at $1,100 and you decide not to settle. This is where payment shock comes to play. 

Payment shock amount = future amount - current amount 

$1,500 - $1,100 = $400

On the first day of each month during the payment shock period, you will deposit the payment shock amount into a savings account without withdrawing the funds later in the month. The premise behind doing this is to safely prepare for having less money available during the month. At the same time, you’re building up your savings that will go towards the money you need once you’re ready to buy: earnest deposit, appraisal fee, inspections, cash to close. After 3 months, in this scenario, you would have $1,200 saved. 

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The practice of payment shock derived from our firm's high use of NACA for some of our clients Pre-Covid. This was one of the ways to determine their new monthly housing costs. Although NACA is still the best mortgage in America, it has become burdensome for buyers who don't necessarily face "the barriers to homeownership", as defined in their mission.