Saturday, November 2, 2013
Zero Down Home Financing
If you are attempting to finance your home purchase or refinance with zero down home financing, you should first understand why it is often a very bad idea and how such financing plans helped lead to the economic meltdown of the last few years. I will explain the two primary ways people obtain zero down financing and then explain why these aren't always such a great idea.Suffering High Interest With PMITo avoid making a down payment, lenders provide borrowers the option to pay exceptionally high interest rates along with private mortgage insurance (PMI). Many home buyers do not seem to mind because those payments are all in the future and they want their house now. Modern people are particularly stubborn about parting with their cash; they often prefer to pay off debt slowly even when they have the cash to pay it off all at once.Zero Down Financing is Short Term: Learn to Think Long TermBut once you commit to such a mortgage, you set yourself up for stressful disasters should any sudden employment problems ambush you or should any unexpected expenses intrude on your life. If and when this happens, those far off monthly payments that seemed so much easier than making a single large down payment will start to feel like incessant waves breaking on the shores of your financial peace of mind, slowly wearing it away.Crafty Financing Isn't Always Good FinancingAnd if you really can't afford the private mortgage insurance on top of the high interest loan, aggressive lenders will guide you toward obtaining a second mortgage. You can then piggyback that second mortgage on the first loan to cover the down payment and avoid having to pay PMI (PMI must be paid on any loan where less than 20 percent of the home value is paid up front).Get Real And Be WiseBut the question you have to ask yourself is this: when lenders are bending over backwards to help you get a loan you could not possibly afford without jumping through hoops, is it really a good idea for you to engage in such an investment? You would be surprised how many home buyers suffer from buyers remorse just months after they have committed to a crazy high monthly payment.If you can't simply show your savings, your income, your debt and you credit score and obtain a direct loan from a single, reputable lender, instead of forcing the issue you should consider stepping back and getting your financial ducks in line. Don't dive into the deep end seeking instant gratification.