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  1. #1
    Join Date
    Dec. 4, 2005
    Location
    washington state
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    10,140

    Default Buying a home, no or less than $1000 down

    I know people do it and am curious how they started it, how it worked or is working out.

    I was thinking about moving closer to work and ended up having a great discussion with my current landlord (who also happens to be a realtor) about potentially buying. Makes no sense to spend more money on rent when I could buy, right?

    I plan on leaving the area (as in across the country, far away!) in a few years so I would be looking at inexpensive, small rental-to-be places. I am not against mobiles or manufactured homes, in fact, I kind of like them! Condos and townhomes are great too. The area is by a very large, integral military base (two actually) which does give some stability to renting population.

    I have no debt except for my car, I have good credit, and a card that has a tiny amount that is paid of frequently.

    So, how does it work? Anyone experienced this?

    *I do think it is great that some of you may advocate for putting down 5-10% minimum but at this point it is more important for me to have an easily accessible cash emergency fund. So, thanks but no thanks
    The Knotted Pony

    Proud and upstanding member of the Snort and Blow Clique.



  2. #2
    Join Date
    Sep. 4, 2006
    Location
    Somewhere in the Southwest
    Posts
    1,282

    Default

    Good luck, not sure it can be done anymore. After the housing meltdown, and subsequent economic crash, banks are being very stingy with mortgage money. My wife and I have been trying to figure out a way to buy a horse property, but since we've been self-employed for less than 2 years, no one will touch us. Never mind the fact that we've both been gainfully employed for almost a decade prior to starting our business.

    Also, most, if not all banks are going to require 20% down payment, or damn close to it. I don't think you'll get a mortgage with less than 10% down ANYWHERE.



  3. #3
    Join Date
    Feb. 14, 2012
    Location
    Fern Creek, KY
    Posts
    3,126

    Default

    We are looking at putting 0 down on our new home in KY. We feel the same way that you do, that we would rather have a higher payment (that we can still handle comfortably in the budget) than empty our savings for a lower payment.

    I'm intrested in hearing the replies as well. We were just assuming (and we all know what THAT means ) that it would work out the same way as putting money down, just with a higher monthly payment and possibly a higher intrest rate. The more I read the fine print on the home loan application, the more my eyes feel like they are melting.

    I know that there are a lot of first time home buyer programs that advertise that kind of stuff, as well as low income programs (yikes), but we haven't gotten into those.



  4. #4
    Join Date
    Feb. 25, 2011
    Location
    So California
    Posts
    3,697

    Default

    I may not be understanding your question, but there seem to be two issues here. 1) whether you should rent or own. 2) how to finance, or whether to finance with a very small down payment.

    So whether you should buy: Read others' opinions. Basically I would break this down into these areas:

    1) How stable are you? Generally, if you can hold onto real estate for a long time you will do better. Also, if you expect to move, home ownership will be an issue as far as the timing of when you have to sell. You may have to sell at a bad time of year or in a bad market. Conversely, if you are stable, you might decide to sell when the market is up and have the leisure of looking for deals with your profits.

    2) How much energy/extra money/time/volition do you have for home repairs and maintenance? Some people find it better to rent in order to avoid this aspect of home ownership.

    3) What financial benefit will you get from ownership? If you are in a high tax bracket, you will benefit from interest deductions and property taxes on a home. Also, if you are smart and lucky, you will be paying down your principle and creating equity.

    4) Are you among those who feel the joy of ownership? This is an intangible asset for some, who love knowing that their house is their own. Others don't feel it, and may be better off renting.

    As to financing, you need to talk to a mortgage broker and read a lot about financing. Then, after you have educated yourself, shop at other places like your credit union, your bank, online mortgage companies and local mortgage companies. Be careful in your shopping that you don't start too many inquiries that negatively affect your credit.

    A mortgage loan is called a product. Mortgage companies will offer more products than say, your credit union. I've found that banks are somewhere in the middle. All products cost you money, either in up front fees or points, in mortgage insurance which protects the lender, or in higher interest rates. The more you pay for a down payment, the lower the interest rate and the easier for you to qualify, because you are borrowing less and the lender is better protected if you default on your loan. If you don't have the cash for a big down payment, there are many programs to help you out, depending on how good your credit is. Shop, shop, shop. Also, a good realtor will be up on the latest products, especially things like city loan incentives/assistance for certain areas of town.

    When you borrow money, you have to qualify for the loan and satisfy the lender that you are able to make the monthly payment and that you have a good history of paying your debts. The house has to qualify as well, because the bank will only lend on certain types of properties and will get an appraisal to establish the value of the asset. So you may not be able to get a loan on a mobile home, or a home that is less than 700 square feet in size, or a condo in a development that has too many rentals. Or you might not be able to get a loan on a beautiful well-built home that is in a 100-year flood plain or too close to the beach, because no insurance company will insure that property, and the lender requires property insurance. Same with a house that is worth less than the land it sits on, or one that has a shake roof in an area with lots of forest fires.

    Hope that's not tmi.



  5. #5
    Join Date
    Dec. 4, 2005
    Location
    washington state
    Posts
    10,140

    Default

    I don't qualify for low income but I do for first time buyer.

    Perhaps the ability to do so is regional or perhaps the banks one deals with. I have a good relationship with my credit union (they Hold my car loan and I make sure it is never even one second late).

    I know two people here in western WA who have done this, one is a cashier at work (she makes about $25,000 annually) a year and she bought in Yelm where I live with no down. The other is my peers daughter who also bought a no down town home in Puyallup last year. Her income is a little higher than the others
    The Knotted Pony

    Proud and upstanding member of the Snort and Blow Clique.



  6. #6
    Join Date
    Mar. 23, 2005
    Location
    SF Bay Area
    Posts
    3,029

    Default

    Looks like there is still the possibility of low (3.5%) down payment loans guaranteed by FHA.

    http://portal.hud.gov/hudportal/HUD?src=/buying/loans

    OTOH, the OP wrote that she plans to move in several years. There is risk in either selling after a short time or in becoming an absentee landlord.



  7. #7
    Join Date
    Dec. 4, 2005
    Location
    washington state
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    10,140

    Default

    Petey, thank you!

    I am looking to buy a small home that I will use as a rental within 5 years. I mean small as in I am not looking for a big beautiful retirement home or McMansion Just a modest little rental.
    The Knotted Pony

    Proud and upstanding member of the Snort and Blow Clique.



  8. #8
    Join Date
    Feb. 25, 2011
    Location
    So California
    Posts
    3,697

    Default

    As for the small down payment, the way they WERE doing it here (things are different now!) is to line up a conventional mortgage that required 10% to 20% down, and SIMULTANEOUSLY lining up a second mortgage to pay the remaining percentage. Frankly, I don't understand how that could be legal, because every loan I've ever signed for had a little statement that the borrower had to swear she was only borrowing this loan and no other indebtedness was assigned to the property.

    The only other way I've heard of to get a small down payment is through special programs for first time homeowners, veterans, or low-income buyers, or for certain areas of town that the county or city was trying to upgrade and offer incentives to buyers, or with new construction where the builder owns a mortgage company, sells loans with a very small down payment, and then sells their loans after a few months.



  9. #9
    Join Date
    Dec. 4, 2005
    Location
    washington state
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    10,140

    Default

    I'm pretty sure I fall under the first time buyer and "certain areas" of town thing. I remember the cashier mentioning that because it was Yelm she could do that. I don't care if it is in Yelm or Roy, it's right by Ft. Lewis/McChord AFB and will provide many potential renters with steady income for later
    The Knotted Pony

    Proud and upstanding member of the Snort and Blow Clique.



  10. #10
    Join Date
    Feb. 25, 2011
    Location
    So California
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    3,697

    Default

    Oh, I forgot one more way to buy: with a personal loan. Sometimes, you may find a property where the sellers want to get monthly payments rather than a lump sum. This might be because they want to minimize their taxes. Maybe they have to finance it because the house is non-conforming in some way that banks won't lend on it. Another reason is that they want to sell the house for more than it is worth, or at least, make it worth their while to finance.

    Then there is a lease/option to buy, where part of your monthly lease payment goes toward the future down payment.

    As for your city or county programs, get on their website and see what they offer, and call around. There may be special state programs as well.



  11. #11
    Join Date
    Mar. 10, 2007
    Location
    Montana
    Posts
    6,641

    Default

    I wouldn't do it if I were in your shoes.

    You would likely be pretty lucky to be able to sell the home at a profit in just a few years when you put little/no down. And you would be hoping for the housing market to improve significantly in just a few years and I'd want to have a brighter forecast than we have now before I bought on your terms.

    I would strongly caution you not to buy a manufactured/mobile home; lending laws are changing on them and you might find yourself with a property that is very difficult to sell.

    Buying means upkeep, insurance, repairs, taxes and a lot of other expenses that renters don't have to deal with. Being a landlord can be a total nightmare especially if you move away. Ask me how I know. It can be tricky to buy a place when you already own another place.

    I wouldn't waste that first time home buyer advantage on what you are talking about here. I would save it for the home you hope to live in for many, many years. And make it a home that many, many people would also want to own.

    The housing market just isn't that safe any more; I wouldn't do it. Renters have a lot of power in today's market. In my opinion, you would be further ahead financially to continue to rent for the next few years.



  12. #12
    Join Date
    Feb. 25, 2011
    Location
    So California
    Posts
    3,697

    Default

    I have a friend who bought a foreclosure by going to the bank (this was when banks kept their loans and didn't sell them. Some credit unions and banks still have their own loans) and asking about their in-house foreclosures, getting financing from that bank and buying it all with no money down.


    1 members found this post helpful.

  13. #13
    Join Date
    Dec. 4, 2005
    Location
    washington state
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    10,140

    Default

    Again, thanks for your insight Petey! So....how do you know so much about this?
    The Knotted Pony

    Proud and upstanding member of the Snort and Blow Clique.



  14. #14
    Join Date
    Jun. 14, 2006
    Location
    VA
    Posts
    11,372

    Default

    Except for the part where you mentioned there being a military base nearby, I personally would not consider this a great idea primarily due to the fact that you do not intend to stay long term.

    While it apears that the housing market is on the way back up in some places and we're unlikely to encounter another down turn like we have the last few years based on "normal" economic cycles, it *could* happen and the scenario you described (as far as your plans, FHA, etc) could put you in a difficult financial situation.

    Back in late '04, I was looking for a place. I intended to rent since I wasn't planning on staying in MI indefinitely. The apartments that were "decent" and would allow my big dog were running around 1200/mo. My mom, a mortgage lender at the time in another state, encouraged me to consider buying a home.

    For 1200/mo for rent vs a mortgage, it made sense to me to try to find a small home and be putting money towards equity.

    I found a nice starter home in an established neighborhood, within walking distance to the elementary and middle schools, near amenities like grocery stores and such--something that I felt would make a great rental property for a young family when I was ready to move.

    I did an FHA mortgage where they basically tack on the "down payment" to the loan so it was 0 down. I bought the home for less than it appraised for so I had automatically picked up about 15k in equity at closing on a 150k house.

    All good right? HA! The best laid plans and all that.

    I LOVED my little house but for starters, having a house costs more than just the mortgage/ins payment and I had GROSSLY underestimated those costs. Putting in a new sump pump, buying tools needed for basic home repairs, dealing with random breakage. I didn't budget real well for that in advance. Then add in doing any kind of updates, painting, decorating, furnishing...boy that stuff adds up.

    I ended up getting a roommate to offset some costs. Pros and cons to that, but generally it worked out well.

    Then the downturn hit and there I was with a house that had been valued at 150k and I was watching similar homes in my neighborhood sit on the market for 120, the 100, then 80k....and falling. No worries, I was going to rent the place out anyway and by the time I really wanted to sell, the market would have bounced back right?

    Nope. I met my (now) husband who also owned a home, though in a different town, and about the time we got engaged, he got laid off. So at that point, we had TWO mortgages, ONE income and while it would've made the most sense to keep my (smaller) house, his kids couldn't be moved out of their school district. So I decided to sell my house. I couldn't feasibly rent the home on such a flooded market for anywhere near the mortgage payment and I couldn't pay two mortgages.

    At that point, my home was being valued well below the amount I owed. But hey, I had a CASH BUYER--neighbor's grandson--so figured I could do a short sale. Bank would not accept the short sale because I wasn't behind on my mortgage. Told me I had to be 3 mos behind before they could consider a short sale. So....I didn't pay the mortgage. Reapplied for the short sale. Again, had a cash buyer for 100k.

    They refused, I was screwed. House went into foreclosure because after al, I was then behind and had been using the $$ to pay the other mortgage. It sat empty on the market (along with about 5 other houses on my street) for about a year with the bank. They sold it for 40k.

    But now I do not qualify again for an FHA loan, I have ruined my credit, and we're STILL stuck with the SECOND house (my husband's) and trying to sell it since he took a job in another state. My bet? We're going to go through this whole process again shortly as the market still sucks here.

    So. That is my long winded way of saying that unless you really plan to STAY in the house long term and can ride out ups and downs of the market, stick to renting rather than getting stuck with a house.

    Best wishes in whatever you do though!
    A good horseman doesn't have to tell anyone...the horse already knows.

    Might be a reason, never an excuse...



  15. #15
    Join Date
    Dec. 31, 2000
    Location
    El Paso, TX
    Posts
    14,256

    Default

    VA loans allow 0 dn, and you can roll closing costs into a loan. But you need to have VA eligibilty.
    FHA loans are 3.5% dn, and seller can pay up to 3% closing costs. That will still leave you with several thousand in closing costs normally.

    The days of zero dn loans on any conventional loans or doing an 80/20 loan (1st and 2nd) are gone.



  16. #16
    Join Date
    Dec. 4, 2005
    Location
    washington state
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    10,140

    Default

    Buddyroo, I'm sorry you were in that position! I have already added and ratio'd housing costs and can afford a house payment with ins, etc, easily on my current salary. There is also that cash money I am keeping instead of putting down for emergencies

    I think the biggest issue is obviously people getting too much house. I know what I can easily afford *now* and also what I can afford should I be forced out of my job and into something less well paying. I am also halfway through an Accounting degree which, as you know, is not like getting a "fluff" degree, accounting has real employment value at graduation and I will also have 2+ years accounting and supervisory experience when I receive my degree. I am looking at homes in the $70-90 range which even at my current (or previous) salary is well within my budget.

    I know several of you have said the days of 0 down are gone but I am seeing and knowing actual people who have done so in the past 6 months.

    I do appreciate the input and if anything, it really underlines the ideology of starting very small and affordable and not going for that big over-priced and susceptible to extreme market fluctuations McMansion I intend to own the property well into retirement so I am unconcerned with trying to "flip" a house.
    The Knotted Pony

    Proud and upstanding member of the Snort and Blow Clique.



  17. #17
    Join Date
    Mar. 24, 2004
    Location
    Pottstown, PA (East Coventry)
    Posts
    3,485

    Default

    I would avoid a mobile home. They tend to be more like a car in that the older they are the less valuable they become. Unlike a car they never become that classic 'Vette or Mustang.

    My stepfather had a mobile home when my mom married him. In 6 years it went from $17,000 to $2,500. It was well maintained during that time and in a nice mobile home park. Nobody wanted to buy a mobile home park.
    Oh, well, clearly you're not thoroughly indoctrinated to COTH yet, because finger pointing and drawing conclusions are the cornerstones of this great online community. (Tidy Rabbit)



  18. #18
    Join Date
    Dec. 4, 2005
    Location
    washington state
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    Default

    Yes, they do not carry much value but land does. And mobile homes are (relatively) cheap to replace (like cars).
    The Knotted Pony

    Proud and upstanding member of the Snort and Blow Clique.



  19. #19
    Join Date
    May. 5, 2008
    Location
    Scranton, PA
    Posts
    750

    Default

    We JUST did this two days ago!
    My hubby and I are both 20...rent is very high in our area due to the gas companies so we decided to buy instead of rent....
    Our bank offered a FHA loan....aka a first home loan.
    The end number was $9500...that's ALL closing costs, our first year of homeowners insurance, inspection and an assesment on the property plus $3000 as a downpayment which is pocket change in my opinion.
    To give you a comparison...we paid $147,000 for our home.
    We also got a great rate of 3.125%

    There's definitely some cash to be shelled out initially but this was the most efficient way for us to do it. I would highly recommend it!



  20. #20
    Join Date
    Dec. 4, 2005
    Location
    washington state
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    Default

    Very cool Hunterkid!!!! Congrats on a new home!
    The Knotted Pony

    Proud and upstanding member of the Snort and Blow Clique.



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