100% Financing, Zero down, and No PMI

15 Replies

I am soon to buy my first Real Estate property using 100% financing from a local bank. The property is a duplex located in the suburbs of the Philadelphia region. The lender does 100 financing with no PMI. I know there are positives and negatives to this strategy. However, is this a good way to get started being my first property? What are some serious things to consider? Are there any serious negatives to this strategy?

@Phillip Kim

Im guessing that the negatives are in the loan terms...

3/1 ARM 6% interest, 15-20 year amt???

 Owner Occupied???

What kind of value add are you getting???? 

Could be loads of negatives but we would need more info to tell you our opinion. 

The interest rate will be the going rate in the current market 3-4% roughly. 30 years amort. Owner occupied, Duplex. 

I'm guessing this is a VA loan? If not, myself and the entire BP community are going to need the name of this bank.

@Phillip Kim I see! A VA loan makes all the difference. Wont be much value add then???

NO. There won't be much room for value add and not really trying too. The property is selling for 350k and is in turnkey condition. My goal here is to buy for as little down as possible, equity build, and cash flow a few hundred dollars/month. This is not a VA loan its just a small local bank and they keep these loans within there portfolio.

Nice work on finding 100% financing Philip. Just curious, what zip code is this Duplex in? Sounds like  you are living in one of the units. But lets say you were to rent out both units, how much do you think this property would gross per month in rents? What is the bed/bath layout for each unit?

When did this deal take place? Wondering is subprime is starting to show the signs...

Name of bank please!

I witnessed this on a flip I sold in Philly and this post motivated me to look back at the details.  The buyer in the deal negotiated a sale price with a 3% seller assist and had lending for a first mortgage of 97% which was a conventional 30 year mortgage with standard interest rate at that time and the 2nd mortgage was a bit less than 3% at a 0% interest rate amortized over 10 years.  https://phillyadvisors.com/  were the "mortgage brokers"? Not sure if this would still be available as PMA was an affiliate of Fox Chase Bank, which was purchased by Univest Bank recently, but seems like a good option to try for retail buyers.  I only represent investors as a real estate agent so I personally have not looked into this. 

Irfan Raza, Real Estate Agent in PA (#RS331743)
215-346-6812

Could you give us the name of the bank and your loan officer?

Hey Phil, typically no PMI is "baked" into the actual rate of the 30 year loan. With rates still relatively low, this can still be advantageous. I would be very surprised if the rate they give is below 4% (even 4.5% with 0 down) right now though.

I also am hesitant to think a duplex at 350k in our area will truly cashflow. Shoot me an email and we'll talk.

Originally posted by @John Knisely :

Hey Phil, typically no PMI is "baked" into the actual rate of the 30 year loan. With rates still relatively low, this can still be advantageous. I would be very surprised if the rate they give is below 4% (even 4.5% with 0 down) right now though.

I also am hesitant to think a duplex at 350k in our area will truly cashflow. Shoot me an email and we'll talk.

Originally posted by @John Knisely :

Hey Phil, typically no PMI is "baked" into the actual rate of the 30 year loan. With rates still relatively low, this can still be advantageous. I would be very surprised if the rate they give is below 4% (even 4.5% with 0 down) right now though.

I also am hesitant to think a duplex at 350k in our area will truly cashflow. Shoot me an email and we'll talk.

I agree. We have a program similar to this at a local credit union. Google NC State employees credit union. They offer 0% down, 5 ARM, 30 years, at about 4.6%. It can be tough to get a membership however.

@Phillip Kim

Getting a great loan product won't necessarily help you save a terrible deal. So you still have to buy the "right" property. That said, if a traditional lender is willing to do this, you really should take full advantage of it. 

Probably the number one risk you face is the real-estate market crashing. Depending on your net worth, this can become disastrous due to the fact that: (1) the property is totally underwater; and (2) the bank knows that you still have other assets that it can collect from you. Many wealthy people have lost an incredible amount of money this way.

In this particular deal, it's a $350k duplex. Based on that fact, I'm going to assume it's a pretty nice duplex. That means there is competition for it not from just investors but also regular homebuyers. SFRs and those types of small properties tend to get hit hard when the market crashes. This is partially due to the fact that the value for these kinds of properties is based on comps (i.e. what an average person is willing to pay for) instead of the income it generates.

I don't have any firm data on it in front of me, but I recall reading that the biggest losers in the last crash were folks who focused on SFR. Developers that focused on new construction for SFRs, for example, got hit really hard when the market crashed. On the other hand, I knew several apartment owners and commercial property owners that managed to survive the last crash without much impact. There are many reasons why they were able to do that, but a lot of it had to do with the fact those properties generated enough income to weather the storm even during a major crash.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.

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