My Opinion On 0% Home Financing

I was browsing Free Money Finance and I came across this article that gives his opinion about getting a “no money down” home mortgage.  Read that article, because I share the same opinion as free money finance.  I just bought my first home 8 months ago, and it was a nerve racking experience.  You feel like you are signing your life away with all of the paper work.  We were able to get a conventional 30 year mortgage with 20% down.  We paid some of the down payment and my wife’s parents paid some as a loan.  Even though I normally advise to shy away from family loans, this works out for both parties.  They will get their money back when we sell the condo in a year, and they have the satisfaction of knowing they helped their kids get their feet off the ground.  It helped us, because we were able to avoid private mortgage insurance which can increase your monthly payment by $40 to $75 per month.  Most conventional loan lenders will make you purchase PMI if you do not put down 20%, because it protects them if you default on your loan. 

The problem with 0% financing mortgages is that it is very risky.  If something unexpected happens a year or two down the line, you may not even have enough equity to cover closing costs and real estate commissions when you go to sell it again.  Remember, the housing boom is gone.  You won’t see the day for a long time where people are flipping houses and making $25,000 after 3 months of owning the house.  No money down mortgages are ways for mortgage officers to lure in younger, lower income individuals into homeownership.  Homeownership is a beautiful thing, and I recommend it to everyone, but it can also be a curse.  If you buy a house with no money, bad things will happen.  The roof will leak, the A/C will die, or the water heater will burst.  Insurance DOES NOT cover for wear and tear.  If you do buy a house with little money down, my suggestion is to hold on to it for a while if possible.  Buy a home warranty from someone like Service America that covers larage appliances and other maintenance issues that homeowner’s insurance will not cover to replace. 

You WILL be successful and wealthy if you handle money the right way.  Think of a rich elderly couple that you know.  How did they become wealthy?  If you don’t know the answer, you should ask them sometime.  The elderly love to give advise to younger people.  I bet you that they will say common sense things like we lived off less than we make, we did not get into debt, we worked hard, and handled money and investments the right way.  Handling real estate the right way does NOT include buying property with no money down.  The next time that you are up at 2am on a Sunday Night, don’t listen to the guy with slicked back hair telling you to go buy five properties with 0% financing! 

  • FMF

    Good stuff!

    And thanks for the mention. ;-)

  • ES

    While I agree with you fundamentally, if you know how to invest your money so you get a better yield than you’re mortgage, you can make out ahead.

    I’ve bought several properties with 100% financing and made out like a bandit. when you only pay $5k for closing closts your return goes through the roof. of course, if you’re mathematically challenged and get into more debt than you can afford, the slightest misstep can ruin you.