You're right that you would have to live in the home at least five years to recoup the "savings" you would get by buying down the interest rate. My best advice would be to keep the $10,000 in an insured CD and "pocket" the interest--or let it compound. If there's a good possibility that you will be selling before 5 years, you are in effect losing a part of the money you paid to lower the rate.
Good luck to you. Again, I compliment you on your analytical approach to buying. The only other thing I would recommend is that you buy in a good location that has a good possibility for appreciation. The best deal is not necessarily the biggest/newest house for the money--it's the best house in the BEST location that will bring you the greatest return on your investment.
Happy House Hunting. If I can be of any service in helping you to locate a home, please don't hesitate to call me.
Coldwell Banker Residential Real Estate
Not sure if I am aswering this in time or not, but let me say this. I am not familiar with the NACA program, but I am a mortgage broker and I have never found a lender that will allow you to completely buy down the mortgage to ZERO percent.
Often lenders have what is known as a floor. Meaning they will not go below a certain percent. If you are originally offered 6.375, my guess is that floor will be somewhere around 5.75%
In this market, my first suggestion would be to make sure you are confortable with the payments, and to ensure that someone told you the taxes on what ever property you are buying will change, and sometimes dramatically.
If you are happy with the monthly payment at your current 6.375% then I suggest setting the money aside in an accessible account. So maybe put $5k in a CD at a credit union and keep $5k in a good savings account or put it all in a money market account. First time homebuyers are often caught off guard by little differences in homeownership that can surprise them. (the biggiest difference I often see clients run into is renovations to personalize the home)
But I think you should sit down with someone and look at all the associated expenses today, and what they could be 1 year from now and then make that decision. You could also look into my website http://www.MMA9000.com and possibly pay off that home much quicker and not have to pay down the rate at all, and start building equity quickly. This program works even if you have no equity in the home and needs no refinancing. Its a great tool for first time buyers as well as people upside down on their current mortgage.
I will be happy to talk to you about it, or just run though all the jargon regarding home buying to ensure you have all your questions answered. Remember when you sign the dotted line you can't go back so make sure you are educated as much as possible. The fact that you are asking this questions proves you are trying to do that.
Congrats on your new home!
Does it pay to buy down your mortgage interest rate? It depends what your situation it is at the moment. Are you looking into lowering your monthly payments right now or are you looking into gains in a long term?
I think this boils down to numbers. What I mean is this:
Your monthly payments on $135,000 at 6.375% will be $842.22 and at 4.523% will be $685.87. So you will be saving $156.35/month. Your anual savings will be $1,867.20.
If you lower your principal to $125,000 then your monthly payment at 6.375% will be $779.84 and at 4.523% $636.07. You will be saving $143.77/month. Your anual savings will be $1,75.24.
How much money are you making annualy having this money invested?
At the same time for you to make up for those $10,000 you would have to be in this property for 5.5 years to in fact be saving that amount.
What you are actually doing is paying $10,000 in advance to lower you monthly payments. So you are spending those $156.35/month in advance.
This is ususally a good deal for you if you were intending to be in the property for over 5.5 years.
Hope that helps. Good luck to you.
Keep the cash,liquidity in this market is important. With the wave of upcoming Foreclosed properties on the way it may be a while before we see any appreciable turn around.