Buying with Nothing Down!
Wednesday, January 31st, 2007
In some circles, this is touted as the greatest wealth building secret; buying real estate without a down payment, and relying on this to boost your wealth. In practice, it’s a lot more difficult than it’s made out to be.
The key rule to keep in mind here is that there’s significantly higher risk and cost, for a zero-down purchase. Typically, you get a zero-down by getting a second mortgage or a HELOC style loan; other alternatives include adjustable rate mortgages (ARM’s), where you pay only the interest for a specified period.
Not surprisingly, the interest rates charged on these loans tends to be a lot higher than a regular mortgage. Plus, you may need to take out additional mortgage insurance that protects the lender against default.
Unless you’re getting a real bargain, think twice about this route for your primary home. The last thing you want is to have to sell out at a loss, especially if interest rates rise or other conditions change around you.
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