Regretting a no money down mortgage?

Question

I am looking to buy my second property, but this one is initially just to serve as a primary residence with my family. I will rent out my current property that I know can yield positive cashflow (I have done it before, and rents have only increased since then). As I do not even really NEED to purchase another property at the moment, I have two options: either wait a while and save up towards a down payment, or just get a 0 money down loan.

Of course with the latter I would be giving up any equity going in, and likely have higher closing costs, but the big advantage that I see is that I don't have to wait to get a property (if I am in a position to act now, why not?), and as long as I am smart with the purchase, I can turn it into an investment property down the road. In this instance, I am ok with not having any equity going in.

My question is this: Has anyone used a 0 money down mortgage but later regretted doing so? If so, what were the unseen "gotchas" that ended up being the killers for you? Was there anything that prevented you from pursuing other properties later on? If you could do it again, would you avoid them altogether or simply shop around for different terms?

All perspectives welcome. Thanks!

Kelly A. · Answer

If you buy a property for 40k w/no dwn payment or buy the same property for 60k w/20k down payment... what's the difference. Why not buy @cash flowing price?

Alexander Persky · Answer

Thanks everyone for the input! I think I will get the process started, and just take my time finding the right property.

Kelly A. · Answer

We bought our house with essentially a zero down on a land contract. I would have to say that we did a differed downpay because we put in the contract that we would put a new roof on in the summer, it actually ended up being in the fall when we finally put on a new metal roof. Know your numbers i.e ARV, repairs... as always if the numbers make sense then why not pull the trigger. Obviously the other things to consider is the neighborhood... location, location, location.

Jeff Brower · Answer

I think this is safe as you don't have a lot properties with zero equity. This is only your second home and you will be living in it. You can take that down payment cash and invest it in a vehicle which will net you more than the 4% rate you would be saving by putting 20% down. Rare is the case when it is possible to even get a zero down loan. I'd say go for it, just dont overpay based on emotion or gather too many properties with little equity or you could eventually get into trouble.

Dan Gamache · Answer

@Alexander Persky if property values go down you'll be underwater. If you had to sell you'd have to get bank to agree to a shortsale or walk away and ruin your credit.

Daniel Bautista · Answer

@Alexander Persky

VA was a Zero down, the only catch was the funding fee, in which at that time I rolled into my mortgage. Bottom line, I owned the home shy of 3 years. I sold it in order to liquidate all revolving debt and use the left over proceeds for down payment to shrink the 2nd time use funding fee. The proceeds where enough to do this and put 6 months of emergency funds in my savings. Over period of ownership home appreciation went up roughly 45%. Common practice for most seller to at least cover some of closing, where I did the same. so sellers pretty much covers title and origination fees and such.

Good Luck

David Stone · Answer

If the property cashflows and all the numbers look good, then how many 0 down properties could you afford to pick up?  We got a duplex essentially 0 down, we offered $5k down owner financing, bought over market value (full asking price), cash advanced a credit card to pay for the down and closing costs, cash flowed every month and eventually raised the rents (to increase the value of the property) and sold it, making around $70k after cashflow and profit selling in a few years - essentially we created money out of thin air. I would grab as many of these properties as I could get my hands on as long as the numbers work!

Alexander Persky · Answer

@Kelly Arneson good point. Thanks for the insight!

Regretting a no money down mortgage?

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