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Mortgage No Down Payment - Getting a Mortgage with No Down Payment

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Is it still possible to get a mortgage with no down payment? With the fallout from the housing crisis, banks are becoming more and more cautious about lending money. The days of qualifying for a big mortgage and being able to buy a big home with no money down, are, for all practical purposes, over.

Going back a few years, during the previous Presidential Administration, George W. Bush espoused a philosophy that every American should be able to own a home. Somehow, those words led banks to institute a policy of providing mortgages to just about anyone who applied. They still checked your credit and categorized you based on how creditworthy you were, but even people with very low FICO scores, no jobs and no verifiable income were given loans.

People jumped at the opportunity to be able to own a house with no money down. Mortgage brokers were doing record business, earning commissions on every loan they processed. No one seemed to care if the loan was questionable. Borrowers with questionable credit history were placed into subprime loans and that is where the trouble began.

Now, there have always been people with poor credit and there have always been banks or other lending institutions willing to take a risk and issue a mortgage. Generally, people with poor credit could only qualify for loans with high interest rates and poor repayment terms. They also were required to put down money before they could get a loan.

Well that all changed as new banking laws and new types of loans were introduced. Perhaps the most egregious type of home mortgage loan was the “no verifiable income” loan, where you did not have to prove your income. All you had to do was merely state your income and the bank would basically take your word and qualify you for a mortgage. So people started saying they made $50,000, $100,000 or more in annual salary and the banks said ok to mortgages that they obviously could not afford if they had declared their real income.

That was only one problem when it came to getting a mortgage with no down payment. Another problem was that property values were grossly overstated. Property owners looking to buy more property used their “equity” in the property they already owned to purchase additional property. They were able to get a mortgage without having to come up with a down payment.

This led to much speculation and greed. With the real estate market seemingly going up day after day, if you bought a house in March for $150,000, you could sell it in June for $200,000. Not having to put any money down on a mortgage, speculators started to run rampant. Imagine someone loaning you $150,000 with very few questions asked, and you use that money for a few months and turn a profit of $50,000. It happened over and over, each time drawing more and more people into the business of speculating on houses that seemingly would appreciate forever.

Well, something happened. The housing bubble burst. The no down payment mortgages were inherently more risky than mortgages where someone puts down 20% or more. The more money you actually have invested, the less likely you would be to default and just walk away from your mortgage. Risky, no down payment mortgages came with high interest rates and bad terms. Adjustable mortgage rates offered a low initial interest rate which eventually moved up over time. People who could not afford a down payment, also could not afford a large monthly mortgage payment. Many new homeowners chose adjustable rate mortgages (arms).

Unfortunately, greedy mortgage brokers and lenders did’nt only fail to fully explain the consequences of an adjustable mortgage, they also willingly encouraged homebuyers to use them. Anything to get a commission.
So, when adjustable rate mortgages moved higher, people found themselves with monthly payments they could not afford. House values were also falling rapidly and many people were underwater (owing more than the house was worth) with their mortgages. Having put no money down, they really had nothing to lose. Many stopped paying their mortgages, lived for “free” for a year and then turned their houses over in foreclosure.

Everyone it seems, has learned a valuable lesson. Banks and other lending institutions might still issue a mortgage with no down payment, but, rest assured, it will only be to very creditworthy customers and not to those who have demonstrated irresponsible credit behavior.

Mortgage No Money Down - What You Need To Know About No Money Down Mortgages [next] [back] Mortgage No Closing Cost - Looking for a mortgage - no closing cost included?

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