By Peter G. Miller
Home buying with no money down is a wonderful concept, something that can make ownership available to huge numbers of people who otherwise are unable to buy. And yet there has not been a rush to buy homes with nothing down, in part because such financing has sometimes been promoted as a get-rich-quick device.
But now we have a well-known lender entering the no-money-down market, something which should greatly help both the concept and its image. The Zero Down Plus loan just introduced by Countrywide Home Loans allows credit-worthy borrowers to buy without a down payment and even finance certain closing costs.
Under the Countrywide plan, qualified borrowers can obtain 15-or 30-year financing for as much as 103 percent of a property's sale price or appraised value, whichever is less. Since 103 percent is more than the 100 percent required to buy a home with nothing down, there is credit available to offset closing costs as well. (The program is not available in Alaska or Hawaii, while in Kansas and Massachusetts borrowers can only obtain 100 percent financing.)
Unlike products sometimes associated with get-rich-quick schemes, the Countrywide plan has a number of borrower protections.
You must to have good credit. You can't borrow more than your credit standing and income allow.
The loan lasts up to 30 years. Many no-money-down deals feature short-term financing, say one to five years. Since real estate is normally held for the long run, short-term loans may need to be refinanced or quickly paid off -- big problems if the property cannot be sold or refinanced. (Even if the home can be sold or refinanced, such activities include cash costs which may not be plausible for an owner with troubled credit.)
There is a known, fixed interest rate. Loans associated with poor credit sometimes have strange terms, such as rates that jump when payments are late or hair-trigger foreclosure policies that require an assortment of costly fees to resolve.
Nowhere does it say the loans provide "no cost" or "zero cost" financing, terms literally banned by some mortgage regulators. All mercantile loans have a cost, the only questions are how and when it is to be paid.
Is there a market for credible loans with nothing down? Sure. Is a loan with no cash at closing a good choice for borrowers? That depends on your needs. For instance, someone with strong credit buying a home in a community where property values can reasonably be expected to rise over the long term might want to look at financing with no-money down.
But there are also questions to ask: If you have 100 percent financing on your home, are you able to get additional credit for other purposes? If you need to move, what happens if the proceeds from closing are less than the mortgage debt? How does the interest rate for a mortgage with 100 percent financing compare with other loans? Would you be better off on the basis of rates and terms with loan products that require 3 to 5 percent down? If you're VA qualified, aren't you already able to buy with nothing down? Can the loan be prepaid, in whole or in part, at anytime, and without penalty?
There's no single loan product that works for everyone, but it's always good to have additional financing options. For their part, consumers are best advised to shop around, look at different programs, and pre-qualify before you go house hunting.
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© Copyright 2000 by Realty Times. All Rights Reserved.