Thursday, January 29, 2009

Zero Down Has Bad Stigma But Still Available

It's not the same zero down mortgage your used to. It's a cashback offer which, for all intents and purposes, amounts to the same thing. The lender finances 95% percent of the purchase price, plus they advance 5% of the mortgage amount as cashback to the lawyer on closing. The total financing is actually 99.89%. The lender charges a higher than normal mortgage rate (currently 5.8%) in order recoup the cashback over a 5 year period.

Given the scandalous lending practices that has lead to the US. subprime disaster, I realize that some of you may find the idea of a zero down mortgage (or anything close to it) appauling. If you are one of those people, I would ask you to consider the following:

1) To qualify for this mortgage, you need to have very good credit and prove that you have sufficient income to carry this mortgage (no hanky panky when it comes to proving income).

2) Do you think it's better to loan 95% on a $400,000 purchase that a person can't afford or 99% on a $200,000 purchase that a person can afford? What matters is that the borrower can afford to make the payments on his/her mortgage. In the US., when their market peaked before the crash, they were loaning 100% with no proof of income and with weak credit. So people were taking out bigger mortgage than they could afford to carry. Not the case here.

3) We need a stimulous to our economy, and there are still people out there who although they haven't been able to save for a down payment (they'll still have to come up with closing costs of course) have good paying steady jobs. If they can afford to carry the payments, I say give them the loan!

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Have a great day!