What are the pros and cons in buying a house with a zero down payment?

Question

How does zero down payment works?

Answer 1

Zero down is a huge risk.

If the house goes down in value, you owe more than the house is worth, and you could be forced into forclosure.

You also have to carry mortage insurance, which adds to your monthly payment.

I don't see any good that comes out of 0 down loans.

Answer 2

There are no pros and the cons are usually the ones offering those kinds of homes. Let's face it, a home is for security. How can you have any security if you have no money invested in the place? If that residence is 100% on credit you have no protection. What if you need repairs? If you don't have 20% equity in the home, you are paying for PMI (private mortgage insurance) so the lenders have some kind of insurance against your default. Zero down payment only increases the interest rate you have and I hope you have chosen a fixed rate and not an adjustable or variable rate. As interest rates go up (and they will) you will be stuck in a loan that will increase your payment gradually or even all at once. If you cannot put money down on the home, then you honestly cannot afford the home. Go for a smaller starter home until in position to upgrade. Consider a loss of income and don't get into a loan you cannot afford rather easily. Those with zero down mortgages often end up losing more than just their homes down the line.

Answer 3

There are both pros and cons to zero down loans. As mentioned in the previous replies, The cons include having no equity in your home, which can make it hard to sell for the first few years if the need arose. Also, zero down loans usually carry either a higher interest rate, or Mortgage insurance, which is an additional fee that is little more than burning money.
Therefore, if you can afford to put some money down (especially if you can do 20% down), do so.
However, if you cannot put a large portion down, there are good loans out there that will allow you to buy a house and start building equity, rather than continuing to throw the money away in rent. Also, all the interest you pay on a home loan (usually) is tax deductable, making your mortgage dollar more powerful than your rent dollar.
I personally prefer, and in conjunction with lenders that I know and trust, usually recommend what is known as an 80/20 loan over 100% loans which have Mortgage Insurance) That means there are two loans, one for 80% of the purchase price of the house - usually a 30-year fixed rate loan - and a second loan for the other 20% of the purchase price. The second loan carries a higher interest rate, but at least that rate is tax deductable (as opposed to Mortgage Insurance). The second loan is also usually amortized over 30 years, but has a balloon payment due after 10 or 15 years. That means they determine the size of the payments as if it were a 30 year loan. But after 10 or 15 years, the remaining balance is due.
My advice is always to pay a little more each month than required on the second loan to "buy it down" early. Buyers can also consider refinancing their loan in four or five years, letting any built up equity help them into a single 80% or first mortgage loan)

My two cents worth - from an N.C. Realtor

Answer 4

The pro is you move into your home with no money out of pocket. The con is you have two mortages to pay and the second will have a large percentage rate.

If you can, put 10% down and get a loan for 90%.

Also, when making an offer with 100% financing, ask the seller to pay for your non-recurring closing costs. But keep in mind that when making an offer, you have to put down anywhere from 2-3% as a initial deposit which will then be refunded back to you when escrow closes.

Answer 5

Stephstewarthome makes a reliable element... yet, i imagine the major right that's no matter if you wait and keep for a down charge previously you purchase or take the better interest with out money down and purchase quicker. the provision of no money down financing and interest funds purely financing is permitting human beings to get in on the marketplace quicker (it really is likewise permitting prices to advance previous what human beings would commonly pay for a house-yet it really is an finished different situation). by shifting into the marketplace quicker you're growing the appreciation on the abode cost quicker. evaluate this - with out money down a 10% advance on a $2 hundred,000 abode is $20,000 and also you probably did not make investments a unmarried dime (except last prices, coverage fee and inspite of the actuality that different prices you incur) - What an really good go back! What in case you've been to purchase 2 homes for minimum down, lived in a unmarried and rented the different, and realized the appreciation 2 fold? in case you placed $10,000 down on each and every of two $2 hundred,000 homes and lived in a unmarried even as renting the different (the condo overlaying the loan, taxes, coverage and so on.) and the marketplace will advance 10% then with a $20,000 funding your fairness has lengthy gone up an better $40,000 or 2 hundred%! it truly is the pro - now the con is that if the marketplace is going down or perhaps continues to be a similar, you'll owe extra after promoting than you get carry of with the sale proceeds. the secret to being efficient in authentic resources making an investment is finding out to purchase with the longer time period in ideas and by no ability shifting right into a topic the position you would possibly want to promote even as the marketplace timing isn't perfect. Having to promote if the marketplace is going right into a droop is devastating - being waiting to attend out the slumps till the subsequent upward thrust is ultimately worthwhile. finding out to purchase in a droop and catching the 20-30% rises like maximum markets have those days experienced is richly worthwhile!

Answer 6

If you can get a 100% loan with the sam terms as 80% or 90% loan(Nearly impossible), there is not a downside to the actual loan.

PMI is the down side. But if you don't have 10 or 20 percent to put down you will have high PMI anyways

If you are stretching yourself, b/c you don't have a down payment that is another story. But if you are investing the money your going to use for your downpayment, I say go for it.

Answer 7

With zero down payment, you will be paying a higher mortage due to the amount you still owe, plus the interest rate will be higher.