No money down loans or 0 down home loans mean exactly what they imply: they’re home loans where you don’t have to make a down payment. This may seem awfully nice at first, but there are many reasons why 0 down home loans aren’t a good idea. As many as 50 percent or more of foreclosures during the housing crash were related to 0 down home loans.
While the protypical 0 percent down home loan involves a single 100 percent mortgage, this can generate an enormous monthly payment. Not just because the whole amount is financed, but because if you make less than a 20 percent down payment you also need to pay PMI (Private Mortgage Insurance). To avoid private mortgage insurance, lenders made it possible to obtain a “piggyback loan.” This is also known as an 80 20 loan, where you get a second mortgage to pay the 20 percent necessary to avoid PMI on the first loan.
But these lending tactics, along with the no money down home mortgage, is largely what led to the housing crisis, and these kinds of loans are now incredibly difficult to find or obtain. So how does one obtain a 0 down home loan these days?
One way to reduce or avoid closing costs and down payments while considering 0 down home loans is to keep it in the family. I know in some ways this idea may not seem like it should count, but this is becoming something more and more families are considering and deliberating as they plan for the long term. In some cases you can share an existing home, but in some cases you may need to purchase a new home that will fit the needs of everyone in the household.
There are many benefits to multi-generational homes, but rather than expanding on it more myself, I thought you would enjoy this helpful video from Coldwell Banker that I found on YouTube discussing some of the aspects of multi-generational homes:
Just a couple decades ago, people regularly made down payments in the range of 20 percent of the value of the home they were buying. Today that average percentage had dropped to under 4 percent. One primary reason for this was simply the skyrocketing value of real estate. To address this, bankers and lenders conceived a number of aggressive and clever ways to help first time home buyers finance their dream home.
Much like with 0 down home loans, a no money down home mortgage means financing the whole value of the home instead of paying a down payment. Did you know that the no money down concept was originally conceived to help wealthy investors further invest without liquidating their assets?
A no money down home mortgage has always been a poor choice for first time homebuyers who don’t have enough money for a down payment. Besides the obvious reason, it adds a lot to the actual cost of the home in a few different ways. One of these ways is with additional monthly PMI payments.
