Buying a home with no down payment: I know it's a bad idea.. but....

Mmkay, so, upon one session of sitting on the throne, looking through the real estate section of the newspaper my wife found a pretty good deal on a home, and we think it may not stay on the market long. Here's the issue.

We have no down payment. We could leverage against our cars but I really don't like that gamble. I've read a little about private mortgage insurance (AKA PMI) but it all makes me a lil nervous.

We have a place to stay now. It's a 25 year old mobile home, its small, kinda cramped, and although my Mom owns the trailer and charges us no rent, we really can use the extra space, especially with a new baby.

This place is a 2011 manufactured home on a permanent foundation, sitting on 11.8 acres with a detached garage/shop. Here's the listing online.

I haven't been inside of it, we jsut found out about it the other day, but it ticks off nearly all the boxes for what we're looking for, with the one exception that it's a manufactuered home and I know how quickly they lose value.

I want to own a home really bad, but my common sense is telling me to maybe hold off until there is more of a down payment. Talk me down, or enable, whichever you feel.

If you don't have the money for a down payment, where is the money for the closing costs and inevitable repairs going to come from?

I'm loving the gigantic garage! Boxhead makes a good point. We just purchased a house (wife and I, not Boxhead and I. I don't swing that way ) without a down payment, but it's not because we couldn't make one. Instead we were able to get the house, pay for all closing costs, etc... and keep almost half a year's payments in our account, just in case. We still had a hell of a time getting 'clear to close', I imagine it would be much harder if the bank knows you don't have the cash for a down payment.

Rufledt wrote: I'm loving the gigantic garage! Boxhead makes a good point. We just purchased a house (wife and I, not Boxhead and I. I don't swing that way ).....

I lol'd

You may be able to have the sellers pay the closing costs, or work it in to the mortgage.

We just bought our first home (MY wife and I... just to clarify) and moved in back in December and I will say that we probably spent $3000 - $5000 on the house AFTER we moved in. There was some stuff that the inspector and ourselves didn't notice, things that we needed, or just crap we wanted to fit the new house.

For instance: We had to call a plumber (twice) the kitchen sink leaked at the valve when you put a little pressure on it (so the wall had been wet for a while) and the tub was leaking in the basement but only when the water was "on", the molding throughout the house was nailed to the walls but they never hit a stud with any of the nails... so the very first time I stubbed my toe in the dark the molding came right off the wall, our old lawn mower was no longer adequate for the larger yard, we needed shelving here, we needed to remove shelving there, higher heating costs for the larger house, I wanted a new work bench, and so on, and so forth.

Most of it was stuff we COULD have lived without, but... yeah.

If I could do it again, I would have probably made sure I had $10k in the bank AFTER we moved in so we could take the "after move hit", fix everything we wanted and still have a good amount in our savings.

If you've got a place "rent free" I would stay there as long as I reasonably could. But I understand where you're coming from. Cramped sucks.

Good luck to ya man. Whatever you decide to do, there's always a way to make it work. -Bill

Woah. You don't have a down payment, but you have cars new enough to leverage against?

You'll probably have to pass on this house, but get your finances straight so you can pull the trigger fast on the next deal that comes along.

Terrible Idea... This is what caused the housing crisis... I am surprised you could still get a loan.. (sorry if that sounds harsh)

Look... You are living rent free and haven't socked away anything for a down payment, and sounds like you have cars worth more than the trailer you are living in.. Buying a home will not be a blessing for you, your wife, and especially not for the baby, it will be a horrible curse.

PMI only makes the loan more expensive for you because you are paying someone to insure the banks against the risk (namely you) that they are taking.

Start making house payments TODAY.. Plus some repairs.. So 1200-1500 a month.. In no time you will have more than enough of a down payment..

Trust your common sense and hold off... Your instincts are true.. Trust them and ignore the pull towards instant gratification. Then direct yourself responsibly and with a WRITTEN plan to achieve your goal of home ownership in the right way. You will find if you start now to really do this on purpose you will get there much sooner than you think.

I'll agree with RonHolm. In addition to the mortgage: you'll have closing costs, property taxes, moving expenses, a wife that will want new stuff for the new house, etc.

New kids are expensive. I know the diaper spendings we had over 4 years (3 kids) as well as the extra things they need.

Make a monthly payment for a year to a savings account that won't let you withdraw until a set date and then see where you are.

First of all, let's dispel a myth: buying a home with zero down payment is not, in itself, a terrible idea. The Dept. of Veterans Affairs has been financing 100% of home purchases for eligible veterans for decades. These loans perform just fine, with low delinquency rates. Down payment, in itself, is not a good predictor of loan performance, in spite of what many people (including many 'esteemed' lawmakers) would have you believe.

That much said, this particular scenario is a terrible idea. Putting aside the fact that the collateral is all wrong - manufactured home, excess acreage (land worth more than house), you have not demonstrated that you have the capacity to pay a mortgage at this time. Smartest sentence in this thread:

ronholm wrote: Look... You are living rent free and haven't socked away anything for a down payment...

Forget the down payment - where's the capacity in your monthly budget to afford a mortgage payment?

buy a sub $20k lot and save $2000 at a time for sea containers once you have $12000 purchase and have 6 sea containers delivered. Build said house from sea crates ( stick or mig welding, spray insultation and lots of cut off and grinding wheels) and enjoy sub $300 a month mortgage. Want an addition or detached garage? save for some more sea crates.

We bought our house with no downpayment and had the seller pay the closing costs.

Could we have made the FHA downpayment requirements? Easily.

Did we wish to keep as much money as possible in savings/liquid in case of an emergency? Absolutely.

However, we also bought FAR below what we could "afford." As in the purchase price of our house is less than our yearly combined gross income (although I realize this isn't possible in some parts of the country). Essentially, we purchased a house that we could support on one income. In that case, I don't think it's essential to have a giant downpayment, etc. etc.

Staying within your means is DEFINITELY the key. Before taking on any sort of mortgage, whether zero down or whatever, you MUST know your budget. My suggestion: see what you can realistically afford, then multiply that by .8, now you have a cushion. It is not unusual for real estate agents and mortgage types to tell you that you can afford more than you are looking at, don't fall in that trap!

Back to zero down: sometimes a motivated seller will hold a second mortgage for the down payment. Be sure to take interest etc into consideration and remember the 80% rule I outlined.

I put nothing down on my house, and got most of the closing costs in the mortgage but that was about a month before the bubble burst. It wasn't the smartest thing I've done but it's working out ok. We found a nice garage with a little house for close to what my apartment was costing. If you are going to do it make sure that the mortgage people are upfront with all the costs. Ours were not and it ended up costing a few hundred a month more than we were expecting, and with my wife getting sick it was very tight. We were able to refinance last year so that helped get things back to a more reasonable payment.

It's not the right choice for everyone but for the difference in price between what we were paying for our increasingly crime infested complex and owning a quiet compound out in the woods the peace has been worth the added expense.

Mobile homes are not mortgaged like permanent homes. Most banks won't touch them. Their interest rates are a good bit higher that a conventional home and may almost be predatory. Mobile begin depreciating immediately down to the pint where they cost money to haul them off, as opposed to a house that SHOULD appreciate.

I wish you luck.

Today, it will be very difficult to find a lender who will give you a loan for more than 80% of the home's price, let alone 100%. That whole subprime debacle kind of eliminated the whole zero down payment thing.

I've got stellar credit, and the last time I tried to get a home loan, the bank told me "Thanks, but no thanks," because I didn't have a 20% down payment. And that's pretty hard to save up for in this part of the country.

I have found the perfect house more times that I can count. The point being, you will not miss out on your dream home if you wait until your finances are in order. Another great deal will come along.

I'm back to renting after owning two homes. Basically I move too much for work and lost my down payment twice due to home prices changing. Ugh.

Make sure you will stay around for 5+ years before buying. I didn't want to be a long distance land lord.

My toilet was just leaking, I picked up the phone and called the land lord. Additionally, my weekends are now my own. I spend more time with my children than I did when I owned a home, because I'm not mowing the lawn or fixing it or driving to Home Depot for something stupid.

bludroptop wrote: That much said, this particular scenario is a terrible idea. Putting aside the fact that the collateral is all wrong - manufactured home,excess acreage (land worth more than house) , you have not demonstrated that you have the capacity to pay a mortgage at this time.

Is buying a property worth more than the house a bad thing for home buyers in general, or just a bad thing when your struggling to pay a mortgage?

Don't do it. You have no rent and for now zero child expenses and yet you still have no money saved up. Huge red flag.

You've got to get hold of your finances ASAP. We are taking the Dave Ramsey Financial Peace course right now (http://www.daveramsey.com/fpu). Yes it is $100, but it is well worth it.

I have spent thousands on medical bills over the last two years, and that is WITH amazingly good benefits from my company. Our second son had chronic ear infections for six months. Each round of medicine was more expensive than the last. Yes the meds were covered by insurance, but the co-pays were still $80 or higher, plus each doctor visit co-pay of $40.

Yes that is a cool house on a nice chunk of land with a killer garage, but do you have the money to buy a tractor to maintain the grass around it? Just one example of all the little crap that creeps up with owning a home.

PHeller wrote:

bludroptop wrote: That much said, this particular scenario is a terrible idea. Putting aside the fact that the collateral is all wrong - manufactured home,excess acreage (land worth more than house) , you have not demonstrated that you have the capacity to pay a mortgage at this time.

Is buying a property worth more than the house a bad thing for home buyers in general, or just a bad thing when your struggling to pay a mortgage?

Not that I would ever buy the house listed in the OP.

It's not a bad thing. See almost any area of the country with high property values. Very common to have a $100k house on a $400k chunk of land.

Sky_Render wrote: Today, it will be very difficult to find a lender who will give you a loan for more than 80% of the home's price, let alone 100%. That whole subprime debacle kind of eliminated the whole zero down payment thing.

We only put down 5% on the house we just bought- that's pretty much the lowest they said they'd do these days for normal mortgages. We got quotes from several different banks so it wasn't that mine was doing anything special. We'll have PMI for a bit until we hit 20%, but since it's a 15-year mortgage and we'll be making extra payments to the principal that should be gone shortly.

So, 0% down is unlikely to be an option, especially as several others have said for a mobile home (assuming 'manufactured' does indeed mean the same thing). As others have said though- living rent-free, it's a bit worrisome that you've got nothing saved up for buying a place if that's what you have in mind- but then I have to remind myself this is GRM and not MMM.

Ashyukun wrote: but since it's a 15-year mortgage and we'll be making extra payments to the principal that should be gone shortly.

Keep in mind, with the low interest rates on a 15 year note (we just did this last year as well and got 3.2%), it may not make sense to pay extra on the mortgage vs investing the money in your 401k/mutual funds, etc.

ProDarwin wrote: It's not a bad thing. See almost any area of the country with high property values. Very common to have a $100k house on a $400k chunk of land.

My earlier comment about land value was an over-simplification of the rules. Google "excess acreage" if you are curious about the details.

Minimum down payments (for a house, not a manufactured home)

5% - Conventional Fannie/Freddie w/PMI

3.5% - FHA insured

0% - VA insured

0% - USDA insured (income limits apply)

There are some lenders that offer 100% financing for portfolio products Example

Combo loans (80/20 for instance) are largely a thing of the past.

Be aware that when you see "no PMI" for loans with less than 20% down, that usually means Lender Paid MI. In other words, your PMI premium is built into the rate. That means it doesn't go away after you reach a certain equity threshold. Not necessarily a bad option, but every circumstance is different.

The comments made earlier about financing manufactured homes are mostly on target - most mortgage lenders won't touch them anymore.

I was going to do it with only 0%-5% down when I was thinking about buying a house, but that was a much different situation--PMI was definitely happening, I had between $2,500 and $10,000 in grants, and the houses were in an area that if it hit the fan, I could rent out the place to college students for 2x the mortgage. I could float the payment on my weekend job, and that was before I even factored in the future SWMBO's salary. I also have an extremly generous father who would buy all of my guitars from me if necessary, and sell them on his time rather than mine, which would provide me an instant $5-10k cash.

Between not having kids, doubling my household income soon (marriage), the grants, and Daddy to bail me out, it was a no-brainer for me to put down as little as possible (putting more to retirement and the fiances student debt will provide a greater return in the long run, especially at current interest rates for mortgages). The pros far outweighed the cons. In your case, I'm not too sure about that. I ultimately decided against it for two reasons: I needed time to build my credit (never having had any debt, I didn't have a score), and by the time it was/will be built, the timeline doesn't make sense to saddle ourselves down with a house.

If I were you, and you're sure you're going to stay in the area, I would build the credit, build the down payment (start making payments to your bank account for a year, since you're living for free now), and then look into the house. Otherwise, take your cars to carmax, sell them right now for the down payment, and drive cheap beaters for a year.

Not to be a total ass, but:

right now you are living rent free, and you haven't been able to save up a down payment? how do you expect to pay for a house?

I mean seriously, you are (lets say) $800+ a month richer (I don't know your cost of living in your area) than people that pay for a house or rent... you SHOULD have 800 a month going into a savings account FOR a down payment.

If you haven't been able to save up 10 grand in year, in your situation, you are NOT ready to buy a house. (learn from my mistakes...)