In the last half century, the idea of what a down payment looks like has changed dramatically. In order for your parents and grandparents to come up with a down payment on their first property, they would have had to come up with 20% of the purchase price.
That’s a $50,000 down payment on a $250,000 house.
Usually this meant borrowing money from family or a very tough period of saving.
That was then, and this is now. It’s now possible to qualify for a mortgage with zero down payment.
If your someone looking to move into a home quickly and you don’t have a lot of money saved up, you could be eligible for a “no money down” mortgage product for first time home buyers.
This option combined with longer amortization periods have made mortgages much more accessible and affordable for a lot of people.
But wait! This option has risks in a down market
As evidenced by the massive amount of home foreclosures and recent market collapse in the U.S., this was probably a choice many people may now be regretting.
Carrying a mortgage with a zero down payment and a home that is declining in value is not a good financial situation to be in.
The Risks of “No Down Payment” Mortgages
Quite simply, if real estate values plunge and you have zero equity in your house (because you made no down payment), you could potentially be in a situation where you owe more than your home or condo is worth.
Under these circumstances, if you sold your property you would not be able to generate enough from the home sale to pay back the lender or the bank, leaving you in debt.
The crisis facing the U.S. is an unfortunate example of how easily this can happen.
This is not meant to scare you away from the “no money down” option completely. For many people this option could mean the difference between stretching themselves a little to get out of renting and start living the homeownership dream.
It’s only meant to help you understand the risks.
If you are considering this as a mortgage option some important factors to consider in a down market are:
- Job security
- Having a back up plan
- Safety net (family loan, other assets, ect.)
Are you a potential first time homebuyer looking to get the keys to your first place? Well your first step is to get pre-approved for a mortgage.
How? I’ve put together a five-part free email class that spells it out, step-by-step. Sign up below: Each one gets delivered to your email inbox hot & fresh about every 3-4 days. It it you’ll learn:
- Why you should get pre-approved now
- The nuts and bolts of mortgage pre-approval
- The documents you need to organize