Buy a Home with No Money Down
Now THAT is not something Mom and Dad would ever have considered and probably will not enjoy hearing your comments about this option, but in today's market place it actually makes sense.
To save up for a down-payment can actually take some time. While you are saving the values of homes are increasing and your landlord is paying His mortgage with Your rent payments! Let's see, pay your own mortgage or pay someone else's? Hmmmmmmmmmm
Well then, how does it work?
It works by meeting all the other lending criteria well and only one thing remains - the down payment
Should you wait and see?
Well, it may mean that your credit score might drop in the meantime or perhaps that car purchase looks like it might be of interest.
Which is better the new car or a new home?
You have to live somewhere! Do you think the car offers good Feng Shui if you have no where to live? Lots of room to grow in the back seat of that new car? Think again. Cars are depreciating assets, houses tend to be appreciating assets. If we are purchasing depreciating assets over appreciating assets it won't take us long to be in a rut and now paying the price to get out. Take a long look at home ownership from all angles before you buy the car. Tempting! I know!!!!
Do the math.
The house appreciating at your local market level even if it is 1 to 4% it will still mean that you are not paying tax on it, your contribution to a mortgage means that it is reducing in size as you make your payments and pride in ownership gets you to reconsider buying that extra night out on the town vs having the stability factor of owning a home. Nope not house poor – not if you own it. Your level of interest makes the difference!
Not to say there are not other costs but if you sit down and work out the strategy and do the time line you will see the results.
Write a list of things that you think you need.
Here are some common questions to consider:
- Can I afford the payment? (rule of thumb, no matter how much money you make, whatever you are paying in rent should not be exceeded by more that a couple of hundred dollars over the rent payment for the mortgage payment.)
- What if I lose my job? That would be the same answer if you were renting as well
- I don't want to be house poor. See #1 as the payment that you rent and the payment that you pay for mortgage is very similar. With a mortgage it can be set to remain for as along a term as you want to pick. With rent there's no guarantee that it will remain the same. Some territories have rules to hold the rent and increase it yearly or can change if the property is sold to someone else. So? Think again. No guarantee when you rent.
- Well we can live with Mom and Dad and save up our down-payment . Yep that is a choice...but....
- My Mom and Dad always said to pay off your mortgage , I will never pay it off when I don't put any money down! Actually when Mom and Dad bought they didn't know about prepayment privileges and most mortgages come with an ability to pay down your mortgage either with accelerated payments and increasing payments every year or by using the principal only payment. This will allow you to apply a direct payment to the principal, With some you would have the mortgage completely paid in 5 to 7 years if you were able to exercise the prepayment option.
- What if I want to sell my house and move somewhere else ? All possible, again most mortgage contain a privilege to either "port" your mortgage (take your mortgage like a suitcase with you) or transfer your mortgage to a new purchaser upon them being able to confirm they can afford to make the payments. If you were to have someone take over your mortgage you would be asking the lender if you could have your personal covenant removed.
- What if I am transferred to another community? There is usually an option to allow you to break the deal (term) prior to the date it comes up for renewal by paying a penalty. It is better to really work on your strategy as to how long you intend to live in the home before deciding to move and working out the details of what that takes to make that happen. For example. If cars are going to have to be replaced, it is better not to have that happen in the same year that the mortgage comes up for renewal. Offsetting years is a good strategy so build your time line and place it on your fridge so you can "view" it as a landscape and be able to see clearly what you already are aware of that would impact your decisions in the future. The decisions we make today influence what happens later, this is not news but it really is amazing how little time is put into planning to buy this investment.
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