hi.. why is 0% financiing bad when you buy a home? Why do people not recommed it? it is because of going foreclosure
As I understand it (In Florida at least), if you don't put down 20% you have to buy some sort of homeowner's insurance that costs you extra every month until you can get about 20% equity and refinance.
There are loan programs offered...or after you have had the mortgage for a while, get the impound and the PMI removed and you can even get a refund check... I personnally had my impound account cancelled...I prefer to pay my own taxes...but I admit it is like pulling teeth..but after one year it was possible and can be done after the fact. PMI= Private Mortgage Insurance...that is actually for your mortgage holder not you...If you can convince them that you have paid down your mortgage enough or that you have appreciated enough in the property they may cancel it at your request ...My parents did and got a refund check for the premium paid (not retroactive)...The current practices may not allow this as my parents did this 10 or more years ago, and the property went up by more than 10 times the value and I was able to compel them to cancel it...it was very ridiculous to have it actually. When my mother got the check for a refund, she started listening to me more. I have learned that most everything can be negotiated on the front end or later after the fact..I call that through the back door Never give up. There are constantly new faces and people that can help you. Just because a company says no...should not stop you... Michael B.
Are you serious? I am not joking. Someone that can't afford traditional lending practices is a higher risk. I would never do one of these programs. They should not be allowed to the general public. Only professional qualified investors with experience. Another BS program is stated income. Make me laugh. Makes me pissed. If my neighbors tooks these programs, and foreclose, which a couple of them have, it drives down my equity down. Thanks Alan Greenspan you did a great freakin' job.
My wife and I bought our house with 10% down, and took out a second mortgage for the other 10% to avoid the mortgage insurance. This was cheaper than a larger first and paying PMI, even though the second was at a higher interest rate. We have several friends who recently bought houses and financed it similarly. In this case, we are all recently out of college with good paying jobs. About 2 yrs later we had the second completely paid off. Not everyone who doesn't have 20% down is a total risk.
The reason it is not considered to be a great thing is that you have no real vested interest in the property. A person who puts 20% of there own hard earned money is not as willing as someone who has no real monetary stake in their home to default. The PMI discussion is almost non-existent because all financing is done with a 80% first mortgage followed by a second mortgage. Lenders request PMI when the first mortgage is greater than 80% (in most cases). I'm sure that there are some cases where they ask for PMI when the mortgage is less than 80%, but this is an exception, and not the general rule. The person who mentioned that stated income is bad is wrong. In many cases, people who can easily afford the payments, would not qualify on full documentation lending. For instance, people who daytrade from home. They are self-employed and do not bring in a salary. They also write off a lot on their taxes. They may be able to afford the payments without a doubt, but proving income in the traditional sense is not something they can do. They would have trouble getting financed. In order to go full documentation, your credit report can not show that including the new mortgage, your payments exceed 45% of your gross income. That would make sense for someone who makes $5,000.00 a month, because they are more of a risk, but for someone who makes over $20,000.00 a month, this is ridiculous.
The fact is is that mortgage allows you to really leverage your money. While most Americans do not have the discipline to properly use an Option Arm or 100% financing, if used correctly 100% financing is a great tool to really grow your money. I put down money when you don't have to? Green Point has some great blended rates for 100% financing. Stated stated 700 mid score will get you a blended rate of 7.5 at par for the broker. Of course with 6% seller concessions I just charge all my money up front and let the buyers pay my broker fees. I usually try to do 100% financing 80% 12 Mat OPtion arm 20% heloc for my clients, as HELOCs are tax deductible. DTI is a compensating factor in mortgage and it appauls me to see that some lenders will allow up to a 55% DTI (debt to income ratio). This is part of the reason why there are so many foreclosures. A lender will lend $160,000 to a home buyer on a LIBOR Arm at a 1% note rate for 3 years. Well, that payment is only going to run them around $650/month. The buyer is only making $2500/month but has a car payment and some student loans and at full index rate the DTI will be around 45%. Now with a low mortgage the buyer accumulates more monthly expenses and the DTI is now around 55% 3 years later when the ARM adjusts. The $650/month payment quickly becomes $1,000 and on top of that you know the buyer was paying the minimum payment and now has $6,500 in neg am. Now, if this was during the real estate boom back in the early 2000's, it's no big deal, just refinance pay off debt and treat your house like an ATM machine. Not so much the case anymore. The underwriter by not really examining so many cases like this really put the economy in a rut. This is especially the case with inflated stated income programs where 'Senior Executive Vice Chairman of Food Inventory" at Mc Donald's (aka Shift Manager) stated that he was one of the best paid SEVC's in Mcdonald's.. It's sad but, the recession is coming and it's going to be bad. Countrywide isn't loving life so much anymore now that they've sold so many LIBOR ARMs and they're not getting their money..