No Money Down House Buying Strategies That Will
Save You Thousands!
Special Report From No Down Payment
Mortgage
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You hear about first time home buyer and
no money down loan programs all the time. Some are good for
you while others are just ripping you off. This report will
reveal what to watch for when receiving loan offers, and
will also reveal the best no money down strategy available
today. A strategy probably no one else will tell you about
simply because they aren't aware and/or aren't thinking in
your best interest.
If you're a first time home buyer, you
basically have two options when speaking with most mortgage
lenders:
Option 1:
Wait a year or two to save up a down payment before buying.
Option 2:
Find a way to gather 3-5% down via gift or borrowed funds.
WHICH ONE OF THESE OPTIONS IS BEST?
NEITHER!! HERE’S WHY…
1. Each year a person continues to rent
versus own, they lose out on thousands of dollars in equity
appreciation. That’s real wealth that accumulates and can be
realized upon sale, refinance, or through an equity line.
For about the same monthly payment, or a little more, a
person can own their own home and not only build wealth, but
receive the tax breaks that come with home ownership.
2. What’s most important for first time
homebuyers? Answer: the lowest payment and the lowest up
front costs. Someone with little money saved will only put
himself or herself into hardship if they borrow, or in some
other way scrape up money for a down payment. That down
payment doesn’t reduce the loan amount enough to truly lower
the payment. Depending on their credit scores, it may also
not provide much of a difference in the interest rate. If
they have to repay the down payment assistance they received
in any way, it’s definitely not a good idea.
So, you know you shouldn't wait, that's
why you're looking into a no money down mortgage. You've
obviously made that first important decision, which will
allow you to build thousands in equity over the next few
years.
Now, is there a no money down program for
you, and of those available, which is best?
Chances are, you're well aware of what
"mortgage insurance" is. It's insurance you pay to protect
the lender in case you default on the loan - in other words
fall behind or go into foreclosure. Typically, any loan
that's more than 80% of the value of the house requires
mortgage insurance. You pay this insurance premium with your
payment each and every month. Worst of all, it's not tax
deductible, so it's basically wasted money on your part.
With that being said, it makes sense to
try and avoid a loan program with mortgage insurance. Most
of our no money down loan programs are without mortgage
insurance requirements. Even when compared to Fannie Mae and
Freddie Mac loan programs, which have lower rates but
require mortgage insurance, other programs have lower
payments.
Here's a story that reveals some things to
watch for:
We received a call from a buyer who had
already received a Good Faith Estimate from a mortgage
broker detailing closing costs and loan terms. They called
us because something didn't seem quite right, and the actual
paperwork ended up having bigger numbers than they were
quoted on the phone.
Trick #1: If the paperwork doesn't match,
or come close to what you've been told, be very aware unless
a valid explanation can be presented. It's not uncommon for
dirty mortgage brokers to present larger numbers at the
closing table than you expected or were told before. They
are betting on the fact that you don't want to walk away
from the house you're buying, so you'll just accept the
deal, even though it's not what you were told to expect.
So, we began to review this buyer's other
quote. They were quoted a 5.25% 30-yr fixed rate for 100%
financing. First of all, at that time, you couldn't get a
5.25% rate on the best Fannie Mae loan with 5% down, yet
alone a 100% financing loan. That was the first red flag.
The best Fannie rate on 100% financing would have been about
6.5% at that time with mortgage insurance additional. Was
that 5.25% rate legitimate? Would they really have gotten
that rate? Probably not. When it came down to rate lock
time, they most likely would have been told that rates just
went up and they would be given a much higher rate.
Trick #2: Know what rates are for what
you're trying to do so you can know if what's being quoted
is too good to be true. Rates do fluctuate, but if the rate
you lock in is much higher than you were quoted, and the
timing between quote and lock isn't very long, be cautious.
A good broker will be able to prove the rate increases, if
they did happen.
So, aside from receiving a rate that was
too good to be true, we also noticed that this loan had a
$289 per month mortgage insurance premium added to the loan
payment. Bingo!! That was the biggest "hidden" catch to the
whole deal. Understanding that most people have heard you
need mortgage insurance, they were betting this buyer
wouldn't question the mortgage insurance. They played the
rate game. By offering such a low rate, and understanding
most people focus on rate, they felt that would lock in this
buyer.
Trick #3: The lowest rate is not always
the best deal. The more realistic rate we provided was much
higher than the 5.25% this buyer received on their first
offer, but since we have no mortgage insurance on our loans,
our monthly payment was much lower, saving them money. The
best deal offers the best overall financial scenario through
a combination of low closing costs and low payments. Rate
means nothing if your payment and closing costs are still
high.
THE BEST STRATEGY…
1. Don’t wait. Get into a no mortgage
insurance program now. This will provide lower monthly
payments that are worth thousands in savings over a few
years.
2. Get into a 2-5 year ARM versus a 30-yr
Fixed. No 100% financing program is the ideal long-term
loan. An ARM provides a fixed rate and payment for 2-5 years
at a much lower rate and payment than a 30-yr, providing
thousands in savings over that time period, and more tax
breaks, on top of equity appreciation. The average American
stays in their current home just under 5 years, so if you
know this house is a stepping stone to something better,
don't pay more for a 30 year fixed loan.
Example: Based on the example above, our
30-yr fixed program saved them money every month over the
other deal they had, but our 3/27 ARM, which is fixed for
three years, saved them over $200 per month, or over $7200
in three years. And, because they weren't wasting money on
mortgage insurance, they were getting more tax breaks
through interest write-offs.
3. If you haven't sold, refinance after
the ARM's fixed period when enough equity has accumulated
and/or the credit situation improves to allow a better loan
scenario.
Most people understand that the sooner you
can move from renter to homeowner, the sooner you can start
to build equity. But, most are recommending and allowing
their buyers to go into 30-yr fixed programs at 100%
financing. That's just not the best decision. No 100%
financing program is your best long-term loan scenario. You
won't get into your best loan scenario until you have at
least 5% equity in the home, and that can take a year or
more to build up. What's most important for the no money
down buyer is the lowest payment and closing costs today,
not the security of a 30-yr fixed loan because you should
refinance in two to three years anyway. So, get into the
lowest rate loan possible by doing an ARM. It's still fixed
for three years, just at a much lower rate, and therefore
lower payment.
Additionally, since hardly no principal is
paid on the loan in the early years, think about an
interest-only loan and lower your payments even more. The
home will still appreciate in value, and that's where the
wealth is created anyway.
Combine the thousands in savings you'll
receive by doing an ARM over a 30-yr fixed with the
thousands in equity growth you'll see over that time period
and you could dramatically increase your wealth in just a
few short years.
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