If SF, I'm seeing ads all over for 1) Brex (corporate credit cards for startups) and 2) Zerodown (pitching no down payment for homes).
It would be quite something if tech and not banks caused the next great recession.
It would be quite something if tech and not banks caused the next great recession.
So while not immune from risk, it’s considerably less risky, and works over a shorter time frame, than other credit options.
That's not a terrible thing either. If you are not able to save up for 5 or more % down, odds are good you will be house-rich and money-poor, which can really suck a lot of enjoyment out of owning a home.
Say, for example: a $300k home with a 285k mortgage will work out to around $2,000 per month. Add in a vehicle payment or two, maybe a higher bill if you have high property taxes, phone, internet, paying down credit cards, whatever, and you're easily in the 3-4k per month just in bills. If you can afford that and not feel financially constricted, then you can afford to wait a bit, get more saved up to put more down, and you'll have more available for vacations, repairs, additions, appliances, etc.
Anything less than 10% is insane, and less than 20% means you can’t afford it.
Instead of Private Mortgage Insurance, the banks (typically?) require that you have a certain amount of cash in the bank as reserves. x% cash, y% investments discounted at 30%, z% retirement discounted at 40%, and so on. More at 10% than at 20%. And so on. But I don't think these are required; there's no reason a bank couldn't just decide to let you go without. And while they require pretty extensive documentation, you can still game the system.
When we bought (2015), interest rates for jumbo loans were LOWER than confirming loans, and no PMI requirement. win/win.
I'm curious if it's that most banks "won't do" or "legally cannot do"?
PMI doesn’t protect the buyer, it protects the bank. If the buyer stops making payments and housing prices are dropping, the bank could be screwed.
Sounds strikingly familiar...
Furthermore, Zerodown is structured so that it will never go through the foreclosure process. They own the property and lease it out, so the worst they'll need to do is an eviction.
Same as any other startup failure, just with REO bargains on the back end.
But if a bank is willing to take on the high risk in return for very high interest rates there's no particular reason why it shouldn't be possible. It may end up being exploitative, like payday loans, but not necessarily.
Is is lower risk, but it's not because it's some weird moral test.
The reason is that the lender only loses money once the value of the house has declined by the amount of the deposit. Say you buy a house with 20% down. If you sell the house at 80% of the value, you've wiped out your deposit but the bank loses nothing.
On the flip side if the house goes up and you sell for 120% you've doubled your money, but the bank isn't any better off.
Every mortgage application asks if someone else is contributing to the down payment. That wouldn't matter unless there were a difference in risk classes between the two groups of people, so it's not purely a matter of a better loan-to-(initial-)value ratio.
Edit: looks like that's not the (dominant) reason; see follow up thread.
> Every mortgage application asks if someone else is contributing to the down payment. That wouldn't matter unless there were a difference in risk classes between the two groups of people, so it's not purely a matter of a better loan-to-(initial-)value ratio.
Don't they ask if someone is contributing to the down payment because it could be categorized as a loan that would factor into your income to debt ratio?
https://www.accunet.com/buying-a-home/can-my-down-payment-co...
From that page, the bank wants to make sure it's not a loan or a side-payment from one of the parties to the transaction.
Still, I'd be really, really surprised if there weren't a correlation between "fraction of DP as gift" and "default rate", but I don't have anything concrete to cite ATM.
These types of loans always increase when credit is cheap, and then they end badly (sometimes very badly) when the economy eventually turns.
Of course, to my knowledge, the only environment where zero down mortgages were really widespread was the mid-aughts housing bubble, but even with an n of 1 I still think it's a bad omen.