25 things vanishing in America, part 2: No-down-payment home loans
Filed under: Home, Real Estate
As the housing bubble inflated, you saw hundreds of programs about how to buy a house with 0% down. Don't expect to find that strategy will work for you today. While you may still find some foreclosure deals that allow 0% down if the bank wants to cut you a deal to get rid of its inventory, you won't find that type of deal on traditional resales. I have seen some builders offering no down payment deals, but they probably are paying significant fees to the bank or a private investor to get those deals for their customers.No down payment homes always came with some stiff penalties, such as high closing costs and higher interest payments, so even in their heyday they didn't make sense for someone who was planning to stay in the house a long time. They did make sense for flippers who thought they could buy a house one day and flip it about a month or two later for significant gain. But those days are long gone.
The only exception to this were VA loans. But their 0% down payment was a benefit paid to veterans. Plus to get those loans one often had to jump through a lot of hoops and had to pick a property the VA would finance. Closing costs could also be higher, as could interest rates.
Today, I hear some large investment groups, called venture vultures by some, are swooping in to buy foreclosure properties in large lots, fixing them up cosmetically and selling them using private loans. If you can find one of these deals you might be able to buy a fixer upper with a 0% down, but you also may be stuck with a money pit that needs lots of serious work.
So if you do see a 0% down mortgage loan out there, tread carefully. Be sure you have the house inspected by a disinterested third party to know exactly what type of repairs you'll need to do before you can live in that home. Also, read the fine print on the loan carefully looking for things like prepayment penalties, exorbitant closing costs, and teaser interest rates.
Lita Epstein has written more than 25 books including "The 250 Questions You Should Ask About Buying Foreclosures."
Reader Comments (Page 1 of 1)
4-06-2009 @ 4:00PM
Julie said...
US Department of Agriculture, Rural Development still has 0% down (100% LTV) home loans in rural areas (towns of less that 20K population.) Rural Development has direct loans for which part of the monthly payment may be subsidized, depending on household income, for low to very-low income households. They also guarantee loans that are written by private lenders, in rural areas, that allow 100% LTV. Contact your regional USDA Service Center for details. www.rurdev.usda.gov
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4-06-2009 @ 5:21PM
Roxanna said...
Good riddance - those 0% down loans are partly to blame for the big mess we're in now. If you want to buy a home you should be able to come up with at least 20% of the purchase price.
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4-18-2009 @ 8:29AM
Barry Moore said...
I think this: By "WE" bailing out the Banks and others they are now able to withdraw the ZERO Down to people.
They are able to be harder for the people to buy a home. Thus, the housing market gets to be a big problem for future home buyers. So there you go, glutting the market again.
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4-26-2009 @ 4:38PM
Ed said...
No more "0" down payment loans - that's a very good thing. A major part of the home market shambles is due to these zero down payment mortgages. If you lose your job due to a recession, or any other reason for that matter, and you have no equity in your home, you are out of luck. Then if housing prices start falling, you are in even worse shape.
I agree with Roxanna.
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4-26-2009 @ 4:38PM
Ariannehana said...
Actually you can still get a 0% down loan IF you qualify with full documentation and have a credit score of even as low as 580. The problem isn’t with this type of loan; it is the greedy Loan Officers who give these types of loans to people who can’t really afford the home they want. If the person can afford it, it is a great thing, a single mom can afford to buy a home for well under what she was paying in rent. Before she was paying $1400 a month with no renters insurance and now she is paying $950 a month with her taxes and insurance included. She also got a bonus $8,000 back on her taxes and will get to write off the interest on her taxes for the life of her loan. It helps boost our economy and helps people achieve the American Dream. There needs to be better regulation of the Loan Officers and underwriters.
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