No money down mortgages

[Ima saver]

In 2005, 43% of first time home buyers purchased their homes with no money down loans. What do you think?

[Snoopy2645]

Personally I think its a bad decision. And another thing I dont understand why people cant save a little something for their first home my bil & sil just bought a house with no money down not sure if its the interest only thing or not but I have a feeling it wont work the payments are over a $1k a month. And I do know of a few people who have done it & thier homes were already foreclosed on makes me sick the banks & real estate companies are really pushing these too guess so they can sale more homes.

[cercis]

We purchased our first home as a no money down loan. We couldn't afford to save money and rent and our payments were going to be $100-200 lower than the rent. It made a lot of sense for us (it wasn't an interest only loan though).

This home we purchased with just 3% down. We could have saved more to put down, but I preferred to put any extra towards cc debt and other high interest debt. I also wanted to just get into our own house (and the payment is again lower than our rent, but not as much lower as before).

[jmjj215]

Perhaps we're a bit unconventional, but we're trying to scrape as much as possible to put toward the down payment on our first home. I want to have that thing paid off as fast as humanly possible as it is.

[Ima saver]

In 2005, 43% of first time house buyers purchased their house with no money down loans.

[flash]

In CA, where in some neighborhoods a condo can be $500K, or NYC, it's difficult to scrape up a 20% down. Standard went to 10%, then down to 5% down in 1990s, etc.

Risk versus benefit? It depends on everyone's circumstances and how large a loan, but in general you are going to have a high rate, and a huge monthly payment. Also increases risk for creditors, and decreases your FICO as your loan is larger.

There are some creative in a buyer's market, or if the seller is willing to carry things. For example, we rented off the DP of our first home over 5 years. We ended up relocating right before we closed, but the market dropped, and we weren't holding the bag, the rent was lower than a mortgage would have been, and the seller received much more than her mortgage payments.

I've also had friends who have worked with a property investor (flipper), and lived in the house with "rent" going into an account until the property value/market came back up. When it was time to sell, they split the profit.

I recognize your point flash about the high value areas, but wouldn't it be interesting to see what would happen if people refused to pay such high amounts and not go without decent down payments?

either the market would have to respond by restraining the value of the homes or the wealthy would begin buying up the properties and renting them out to all the refuseniks.

ain't gonna happen I know but it's something to think about.

[Tree0164]

We had 10% down 10 years ago and my parents were like you should have 20% saved. Looking back I wish we did, but our house has gone way up in value.

People think that they can buy everything on credit these says and not use cold-hard cash.

[Bluezy]

Bad move...You end up owing more than what the property is worth. Please save and put as much down as possible.

[Ima saver]

If the markets cool, some no money down buyers could owe more than their homes are worth.

[Fern]

No $ down mortgages are best suited for people with high incomes who need maximum tax deductiblity of mortgage interest.

[Ima saver]

But if they had high incomes, wouldn't they have lots of savings to put down?

[cercis]

I think low money down can be a great deal for people. If you get a house with a lower payment than your rent, you are in a better position to save money.

I know for us, the only rent we could get was at the top of our income levels. We could have lived in a slum with our 2 kids and managed to save a down payment (but not much because even those had rents that were $400+) or we could buy a house with very little down and spend $450-550/month on a payment.

It made good economical sense for us (and for lots of other people) because 1) we were buying in the low range so there wasn't much room for the value to go down, 2) we were buying in a strong market, 3) we were committed to paying extra on our mortgage and 4) rent and renter's insurance would have been higher than our payment and prevented us from saving for a down payment.

[mbhunter]

If you're of modest means and can't afford a down payment, you really cannot afford the house. Banks are offering loans to people who have absolutely no business taking out a mortgage. Some banks will offer you 100% financing if your credit score is above 500. I'm not kidding: This is the second percentile! As long as you're in the top 98%, you can get a mortgage with no money down!

[cercis]

Originally Posted by mbhunter

If you're of modest means and can't afford a down payment, you really cannot afford the house.

Can you back up that statement?

I posted above that many house payments are lower than rent payments. If you can't afford the house then you can't afford to live anywhere.

I wouldn't advocate doing this to afford a major house purchase, but if you can get a house for $50k and have a payment of $450 then you will be in a better position to save money and prepay your mortgage. On the other hand, if you were renting a house (or apartment) you would expect to pay a minimum of $350 plus renter's insurance (which usually runs $60/month). So for your minimum, you could save $40-100/month. In 8 years you could save the 20% downpayment for that $50k house - while living in a lesser environment. And in many areas, you are living in an extremely unsafe area - an area that will cause your car insurance to skyrocket.

I don't think there is a blanket this is good, this is bad statement about this. I think that it depends on your situation. For us, it was better to buy our house with very little down and have a payment lower than our rent and live in a better neighborhood.

For people in areas that are rent controlled and housing prices are high - this is probably not a good idea. If you can rent a good space in a good neighborhood for a lot less than a house payment, then you should save the difference and have a downpayment.

[mbhunter]

Two years ago the percentage of first-time homeowners who got a mortgage with no money down was 28%. (Source: March 6, 2006, Time, from their archives.) Now it's 43%. What does this indicate? Likely, it indicates that fewer people can afford to purchase homes with "conventional" mortgages with a down payment. Or people just don't see the same need to save up before they buy something. Or lenders have been making these loans with their bottom line clearly in sight and full faith that housing prices will continue to rise so that these loans don't go upside-down. No-money-down mortgages used to be uncommon.

No-money-down loans are tools, along with even more questionable products like interest-only, ARMs, and neg-am loans, that are used by lenders to extend loans to people who cannot qualify for other loans. These kinds of loans barely saw the light of day a generation ago. Banks will lend you a lot more than you should borrow or can afford to borrow. Many of them don't really care if you can pay it back, because they sell your mortgage almost immediately! It's no longer their problem, but it is yours if you overborrowed.

Plus, the difference in payments isn't the whole story. Owning a house also involves maintenance. With no money down, there's also PMI or a piggyback loan. Was that factored in?

I guess it's a matter of principle. Using no money down usually is a fallback option for people who don't have the cash for a down payment. Maybe after a wave of foreclosures banks will stop offering these kinds of loans.

Can you tell I really don't think too highly of these kinds of loans?

[cercis]

MBHunter - my payment was between $450-550 (it changed every year because they kept screwing up my escrow). That's the total payment which includes PMI, taxes, and insurance. My rent for a comparable house (well there was no actual comparable house because I had a half acre of land in the middle of the city, but as comparable as you can get) was $650. So my payment was between $100-200 lower for the house. It didn't need much maintenance at all (part of the process of buying a house was finding one that was in good shape).

I'm not saying they are a good idea for everyone. I'm saying they aren't necessarily a bad idea for everyone. That in some situations they can be a very useful tool.

The house we have here we only put 3% down. Because, again, a house payment (with PMI, etc) was quite a bit cheaper than rent. My house payment is $675/month. Rent (without insurance) was $690/month. My house is bigger and in better repair than the rent house. I could have rented for 5-10 years to save a down payment, or I can be living in and paying for my house and in 5-10 years I'll have more equity than I would have had down payment.

Originally Posted by mbhunter

What does this indicate? Likely, it indicates that fewer people can afford to purchase homes with "conventional" mortgages with a down payment. Or people just don't see the same need to save up before they buy something.

I think that has more to do with it than many people give "credit" for.

An undeniable, and growing aspect of our current society is the "have it now and damn the consequences" mentality.

As Cercis noted, it's nice to have that cash flowing towards equity but with nothing down, I simply don't have any houses available to me (that won't need work in a couple years) that will give me a payment far enough below my rent ($525) to make up for the taxes and insurance.

tax deductions? moot point. my effective rate is only 10.1% and even the first year with deductible points (if any) included I would be lucky to beat the standard deduction.

I realize the argument is not mathematically as simple as that, I have to factor in the fact that the house payment will never change where my rent will (at least it's supposed to, been the same for three years now, but that can't last).

the desire is most certainly there to buy one, but it's important to me to wait a few years, finish building my foundation (efund and retirement) and then "do it right."

maybe as the market dynamics swing back (I think the word "bubble" is terribly overused right now) and a little more equilibrium develops between the buyer side and seller side, I will be more likely to feel comfortable buying. possibly a seller willing to cover a good portion of my closing costs or something like that. that would motivate me.

[debtfreeme]

i would love to know where in the country both of you are living? In california there is no possible way of purchasing a house for 50k or having a payment at 600/month. Maybe i need to consider moving someplace else.

[Ima saver]

Well, I live in N. ga., but you can't buy anything here for under $100,000 except a mobile home. A lot of that is due to the rising cost of building materials. My husband built a house about 4 years ago for $65 a square foot, now they are running $100 a square foot and up. I just paid $20,000 for a poured concrete basement.