No Money Down?
Tuesday, November 14th, 2006
Many home buyers wonder whether they should look for “Nothing Down” opportunities, for their first home; books by Robert Allen and others talked about the potential of building wealth through leverage. Robert Kiyosaki’s books also touch on these possibilities.
It’s tempting - why struggle to pay a down payment, when you could do without? A HELOC or credit card advance, or a second mortgage from the seller, and you’re home and dry.
There are advantages to this, and if you do find a legal and profitable deal, you can go ahead. Bear in mind the following :
- If you are going for a “nothing down” deal, make sure that the property is cash flow positive. That means, after mortgage payments and other expenses, you WILL have money left over. This protects you against any changes in interest rates that could increase your payments or violent drops in property values which leave you upside down on the loan. For this reason, never buy your primary home on nothing down - you don’t want your personal life disrupted, and the home you’re living in doesn’t generate cash flow.
- HELOC’s and card advances generally involve a much higher rate of interest - and it could impact your mortgage rate adversely
- Some mortgages do not allow secondary mortgages, or seller financing - make sure of your ground before committing to a deal
- Make sure that if the deal does go sour, you can walk away without impacting your other investments.
Unless you’re stretched, it makes more sense to buy your first home with conventional financing, and use nothing down techniques once you’re more comfortable with investing.
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