Bank of America has something called a "community reinvestment loan" and also an "acorn loan". You can have 100% financing without paying PMI, your credit can be less than perfect (as long as the last 12 months show okay) and the rate is usually about 0.75% below the current market rates. The only thing is that you have to make less than 75% of the median income for the county you live in.
Stephstewarthome makes a good point...BUT, I think the key here is whether you wait and save for a down payment before you buy or take the higher interest with no money down and buy sooner. The availability of no money down financing and interest payments only financing is allowing people to get in on the market sooner (it also is allowing prices to increase beyond what people might normally pay for a house-but that's a whole other issue). By getting into the market sooner you are getting the appreciation on the house price sooner. Consider this - With no money down a 10% increase on a $200,000 house is $20,000 and you didn't invest a single dime (except closing costs, insurance fee and whatever other expenses you incur) - What a great return! What if you were to buy 2 houses for minimum down, lived in one and rented the other, and realized the appreciation two fold?If you put $10,000 down on each of two $200,000 houses and lived in one while renting the other (the rental covering the Mortgage, taxes, insurance etc.) and the market increases 10% then with a $20,000 investment your equity has gone up an additional $40,000 or 200%!That's the pro - now the con is that if the market goes down or even stays the same, you will owe more after selling than you receive with the sale proceeds.The secret to being successful in Real Estate investing is buying with the long term in mind and not getting into a situation where you have to sell when the market timing is not right. Having to sell if the market goes into a slump is devastating - being able to wait out the slumps till the next rise is ultimately rewarding.Buying in a slump and catching the 20-30% rises like most markets have recently experienced is richly rewarding!
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Absolutely - if you don't plan on living there forever. Look at it this way. Let's say you want to purchase a house for $100,000. The bank offers you a 6% interest rate if you put 20% down and 7% if you put zero down. Assuming both loans are 30 Years in length at fixed rates, the mortgage payment on the $80,000 @ 6% interest would be $479.64, and the payment on $100,000 @ 7% interest would be $665.30. Now, monthly the lower interest rate in combination with the lower loan amount would save you $185.66.This would seem like the way to go - HOWEVER, now if you look at it another way - you've just invested $20,000 into a house that saves (or in investment terms, yields) you $185.66 a month. That's actually considerably less than you would receive by just depositing the money into an average savings account. Which of course would make this a bad investment.95% of homeowners only stay at their current home 2-3 years. You wouldn't give $20,000 to an investment banker and be happy with $185.66 a month in return. So why invest it in a home.Invest the money you would've put down on the home elsewhere with much higher yields - and use it to pay your mortgage. Any penny over $185.66 is saving you money by putting zero down on your home and taking the higher interest rate.If you invest in a 3 year bond, that mirrors your plans to stay in your home for 3 years - you can easily compare the difference and make your decision. $185.66 x 36 months is $6,683.76. Speak to an investment broker and any option for 36 months that yields more, would be a better investment.Home finance is so confusing, it's hard for the average individual to step back and see it for what it actually is. Just an investment. An investment on which you should expect a return.Hope this helps.
Its only a good idea if you absolutely can't afford a down payment. Because you have no vested interest in the house without a down payment, you will have higher closing costs, a higher rate, and really high payments. Also not everyone can qualify for a 100% loan, you'll need at least a 640 to 660 mid fico score with very good income, or a 680 to 700+ for a stated loan.
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I think another point of the zero down mortgage is, since you have no amount of money into it yourself, your committment to the loan is generally lower (in general). If you say to yourself, I will put down 5%, then you have invested your real hard earned dollars, and you are less likely to buy something that you will be concerned over the payments. Mortgage brokers are great at helping you to buy at the top of your income ability, use some self restraint, buy lower, and give your self a bit of room in case the car's transmission goes out or whatever.PSI am a mortgage brokerBobbie
A no down payment mortgage is good in the fact that a 20% down payment can be hard to come by, especially for first time buyers. That said, you have no equity in your home right away, your monthly payments are higher, you will generally pay a higher interest rate on the mortgage, and you will most likely have to pay PMI(insurance).
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As a mortgage broker form Edmonton Alberta. Here we have a superheated economy because of the oilands. Last year the house prices in Edmonton rose by 52% and are expected to rise by at least 15% this year. So I tell clients that if you want a home you had better decide fast, because the longer they wait the type of property they can afford will go down. One of the big factors was that lenders would give a higher rate for 100% financing, than they would with 5% down. However now there's a lender who will give premium rates even with 100% financing. So in my opinion why waste money on rent when you will build equity in your own place, with nothing down. Really how long will it take you to save 5% for the down payment & how much will the real estate market appreciate in that time? It may be the difference between you buying an apartment or a house.