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 such lending trickery 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 avoid closing costs and down payments while considering 0 down home loans is to keep it in the family. I know in many ways this idea will almost seem like it shouldn’t count, but to be honest, I think it is something more families should consider and deliberate when they plan for the long term.
There are many more benefits to multi-generational homes, but instead of expanding on it myself, I thought you might enjoy this good Coldwell Banker video I found on YouTube discussing the matter:
A shared ownership mortgage is an excellent way to find more affordable property. If you can’t possibly afford the down payment and expenses of a full mortgage, you might be able to swing for just 25 to 50 percent of that property value. These fractional ownership schemes are more popular in the UK than in the United States, but they’re gaining momentum in the States.
The origins of shared ownership programs are similar to the origins of 0 down home loans: the wealthy. The concept was to enable expensive properties such as yachts to be shared among the wealthy who wouldn’t be using their property for very large portions of the year. Like with 0 down home loans, these programs spread as their convenience became apparent to all.
Shared ownership mortgages have become one of the more flexible mortgages available. But make certain you obtain advice from a broker savvy with such programs. You want to make the most of your money and increase your chances of building equity in your property.
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 exhibiting poor credit.
