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photosofrichard

Are $0 down mortgages always a bad idea?

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My husband and I originally planned on buying a house when we would put 5% down + closing costs and have a 4 month emergency reserve. We are on track to achieve that by fall 2021. We currently live in NYC and want to move the suburbs for more space and better educational options for our children. 

 

We're considering scrapping that plan in favor of a 0% down/no PMI portfolio mortgage (I qualify for one as a newly licensed professional) which would bump up our buying timeline by a year. We are considering upping the timeline because our rising 6th grader was placed in a crappy middle school and we cannot afford private school tuition. 

 

Renting in the suburbs is not an option because there aren't affordable apartments/homes to rent for a family of our size (family of six) in our target areas. 

 

So, is a $0 down mortgage always a bad idea? When does it make sense?

 

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Provided that you make far more than a minimum payment each month, a 0% can work for some people.  However, the reason many look down upon them is that too many people use them to buy more house than they can afford and then they ALSO just make a minimum payment, often pushing the payment as late as possible (which just keeps the interest adding up). 

 

Avoiding PMI is absolutely a good thing though since that is money pissed away that you will NEVER get back. 

 

Make sure that ALL numbers run related to the mortgage accurately reflect property taxes and insurance.  There are too many horror stories of people that don't take those into account and rely on outdated numbers.  A good agent can get you close on insurance.  Appraised values for taxes can change substantially when there is a sale, especially if the previous occupant had exemptions that won't apply to you...

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16 hours ago, centex said:

Provided that you make far more than a minimum payment each month, a 0% can work for some people.  However, the reason many look down upon them is that too many people use them to buy more house than they can afford and then they ALSO just make a minimum payment, often pushing the payment as late as possible (which just keeps the interest adding up). 

 

Avoiding PMI is absolutely a good thing though since that is money pissed away that you will NEVER get back. 

 

Make sure that ALL numbers run related to the mortgage accurately reflect property taxes and insurance.  There are too many horror stories of people that don't take those into account and rely on outdated numbers.  A good agent can get you close on insurance.  Appraised values for taxes can change substantially when there is a sale, especially if the previous occupant had exemptions that won't apply to you...

Thank you! You've given me a lot to consider. 

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18 hours ago, photosofrichard said:

our target areas

You are basically saying that you are targeting areas where you can't afford to buy, and you can't afford to rent.  Red flag.

 

Unless you have substantial emergency savings or exceptionally helpful family members with deep pockets, you'll need another contingency plan for unexpected expenses, loss of income, etc.

 

Last year our HVAC system ($10,000) and water heater ($1,500) died two weeks apart.  A month ago the refrigerator gave up.  It never ends.  

 

 

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Typically the rates are higher for a 0% vs. a 5%/10% and then again vs. a 20% conventional.  While you may think you are benefiting up front by putting 0% down you may be paying far more in interest down the road.  At a minimum you should compare your options and look at the total cost, not just the down payment.

 

And if your kid has to go to a "crappy" middle school for a year, they'll be fine.  It's 6th grade...not going to make or break whether or not they can get into an Ivy League school or be successful in life.  I know plenty of people, myself included that went to inner-city "crappy" schools and have been quite successful.  It isn't worth mortgaging your future over.

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