Financing in New York>Question Details

Dean, Home Buyer in Bronx, NY

I NEED TO KNOW ABOUT THE O DOWNPAYMENT

Asked by Dean, Bronx, NY Fri Apr 20, 2012

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"A house without equity is just a rental with debt."

I didn't come up with that, but I wish I did, I think i's true. However you raise a fascinating and complex question, with no easy answer.

Without equity means no down payment. It also means you've made a down payment, but the value of the property has fallen so much that your down payment has been wiped out.

Let's first assume you can actually buy with $0 down, you have a lender. Lenders are going back to their old risky ways, so maybe it's not impossible that somebody wants to lend you the money.

The investment question is--and this is an investment decision, Dean--is it worth it to be on the hook for a loan for this piece of property, which is likely to go up in value eventually, but could also go down in value? Or is it better to rent?

First consider how much place you can get for $X of rent, versus how much for $X of mortgage+taxes+insurance+maintenance. Start by doing a study of this, if you haven't already.

If you rent, you're only obligated for 1 year of rental payments at a time. You have no possibility of ever recovering that money, or making any profit. The landlord is making money off of you. However, you are not paying property taxes or maintenance expenses (we hope). You know exactly what housing costs each month.

If you buy, you have a much, much larger debt obligation, taxes, insurance, and maintenance to pay. Many expenses are truly unpredictable, as all homeowners will testify. Your property will deteriorate if you don' t maintain it, you will lose value unless you take care of it. That costs money.

Defaulting on a mortgage is a more serious financial situation than skipping out on the last month's rent. However, if the property goes up in value, and you are the owner, you could actually make a very small profit when you sell. I think profit is likely to be small because the interest rate is likely to be high for such a loan. Still, interest rates are at such historic lows, it could be worth it.

But, if you buy, you can't move as easily--not at all. I regularly speak with people who feel trapped in homes that won't sell at the price they feel they simply must have. You might have to sell at a loss, in which case that's money out of your pocket. Are you committed to staying here at least 10 years?

As Ron points out, you could find yourself homeless if you fail to keep up with mortgage payments. But that's going to take at least 3 months, maybe 6 months or a year to get you out of there in foreclosure. The same thing can happen if you fail to pay rent--you get evicted.

The hit to your credit record if you default on a mortgage is truly severe. It might affect your ability to get a job. I don't know how defaulting on rent affects credit reports, I do know landlords vary on what they expect. I don't know if it affects job prospects. I suspect it depends.

So.....what is the best strategy? Only you can answer that. Your tolerance for risk is certainly an important factor. As some wise person said, "You can either eat well or sleep well," but different people have different abilities to sleep well under various circumstances!

Karla Harby
Licensed RE Salesperson
Rutenberg Realty
New York, NY
212-688-1000x146
kharby@crrnyc.com
1 vote Thank Flag Link Sat Apr 21, 2012
Good morning Dean,

If you are a Veteran of the Armed Forces and you qualify for VA Guaranteed mortgage financing, then eligible Veterans are permitted to financing up to 100% of the purchase price of the home. That means no down payment.
http://www.trulia.com/blog/tcurranmortgage/2011/10/va_mortga…

For other HomeBuyers, Non-Veterans, the program in the Bronx for qualified Homebuyers with the lowest down payment requirement currently is the FHA or Federal Housing Administration. The FHA Insures mortgages made by banks and Mortgage Bankers and allows for a down payment of only 3.5%.

After FHA, Conventional financing through either FannieMae or FreddieMac allows for a minimum down payment of 5%. The Lender will need to obtain approval from a Private Mortgage Insurance company (PMI) to complete the loan approval.

The best way to have these questions answered in a timely manner is to locate a local Mortgage Banker with at least 15 years experience. Mortgage professionals like myself who work for local Mortgage Bankers are Licensed as opposed to the registered status of sales people at regular banks. Thus you will receive a higher level of service which is just what a First Time HomeBuyer needs in the Bronx.

I hope that helps!
Trevor Curran NMLS #40140
0 votes Thank Flag Link Sat Apr 21, 2012
The 0 downpayment is the biggest contributor to people losing their houses recently!
Is that what you wanted to know?
Probably not.
How about; because of that statistic, there are very few programs that allow for a ZERO down payment:
USDA has such a program, but it pertains to RURAL (read; farms) properties.
VA (Veterans) has a great program for Vets; are you one?

The only other hope I can offer is that some Cities/Counties, (such as Kansas City) offer programs to help first time buyer with the down payment: You would have to research that locally.
0 votes Thank Flag Link Fri Apr 20, 2012
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