Buying a home with no money down
I often get asked if it is possible to buy a home with no money down. Well, you could get yourself a 'no money
down first time homebuyer mortgage', assuming you qualified and they are still available in the current state of
the housing market, but you would do well to reconsider.
Buying a home with no money down can suggest to a potential mortgage lender that you may be a bad
financial risk.
Why? Well, if you've been unable to save money towards a down payment, how are you going to afford the increased
financial responsibilities of paying a regular monthly mortgage payment, together with the ongoing costs of
maintaining your own home? And before you get that far you will need to cover the purchase costs, moving expenses,
and your new home will need furnishing, and that all takes cash. How will you afford it?
You see, when you ask a mortgage lender to put up all the expense for buying your new home, you aren't
displaying any commitment on your part to responsibility for the mortgage. All the money at risk belongs to the
bank. If you default on your mortgage and the bank has to force a sale they might not get all their money back. You
walk away from the problem - they have to sort it out. Whereas, if part of the property is yours because you made a
down payment, you would surely do whatever you could to ensure you didn't lose your home, and banks like that.
What can swing matters in your favour is if you have an above average income. High earners can sometimes get
approval for a loan application because they have a lot more net disposable income. That is to say, after all
their monthly commitments are paid, they still have a truckload of cash to play with. Even then, a lender
would want to know why it hadn't been possible to save for the money down, considering the high earnings, but they
would still be better placed to cover the mortgage payments.
Notwithstanding all I've said, if you are a first time buyer there are usually preferential mortgage plans to
get you on the home buying bandwagon. First time buyers are the engine that keeps the property market moving, but
if you stretch yourself financially, and buy a home before you can reasonably afford it, then you expose yourself
to the risk of serious financial hardship in the future.
Buying a home with no money down can be risky, especially in a falling market . When the economy moves against
you, just as it is currently doing in the US and UK. far better all round for you to accumulate some cash as a down
payment.
Buying a home with no money down can be risky, especially in a falling market. When the economy moves against
you, just as it is currently doing in the US and UK, it is far better to be cautious and hold back
until you can accumulate some cash as a down payment.
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