Author Topic: 0% Down Mortgage?  (Read 3508 times)

caliq

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0% Down Mortgage?
« on: March 23, 2015, 11:07:12 AM »
No face punches!  This is a theoretical question only ;) 

There's a thread in the Welcome forum that's talking about paying down a mortgage vs. investing and a question occurred to me, but I think it will push things too far off topic, so I'm gonna ask it here xD

VA home loans are available to veterans with 0% down payments, with no PMI.  Normally there is a funding fee if you put less than 5% down, but disabled veterans are exempt from the funding fee.   As I say frequently (too frequently? hmm) on this board, DH is a 100% disabled veteran.  For this theoretical exercise, assume we could get a market rate on the full loan vs. an 80% loan (which I think is possible/allowed). 

Is there any downside, in this semi-unique situation, to buying with the 0% loan and investing what would be a down payment vs. putting down the traditional 20%? 

The only thing I can see is that the monthly payment will be higher, causing potential cash flow issues (but obviously that's a fairly easy problem to work around). 

KCM5

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Re: 0% Down Mortgage?
« Reply #1 on: March 23, 2015, 11:26:38 AM »
We have a similar loan - 3% down rather than 0 down but no PMI/extra fees. The only downside I see with it is that we theoretically have very little equity. Now, we really do have about 20% equity because we bought a foreclosure that needed a bit of a touch up but it is pretty great shape now. But the way I look at it, what's the worst that will happen? Can't pay the mortgage (and the slightly higher amount can't be that much - in our case the payment would go from $650 to $600 if we had $20% down because we pay as much in taxes and insurance as principal and interest) and you have to sell the house for a loss with the associated costs of selling a house.

It's all just a guessing game/numbers game, but I think in general if a person has good money management skills and isn't just jumping on a house with no backup money it's a good plan.

caliq

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Re: 0% Down Mortgage?
« Reply #2 on: March 23, 2015, 11:30:18 AM »
Yes, I thought of the lack of equity too but I couldn't really see a downside to that other than the typical PMI issues.  You might have to sell the house at a cash loss but that would still technically be a loss if it ate up all your equity anyways, I think. 

boarder42

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Re: 0% Down Mortgage?
« Reply #3 on: March 23, 2015, 11:42:37 AM »
i see no downside minus the fact that you wouldnt have equity ... so if you had to move and the market depreciated you would have to add cash to the pot to sell.  but thats true even if you put 20% down and the market depreciated over 20%.  i would do this if it didnt affect the rate i got then it may be different depending on what the rate difference was ... i have to do some maths to figure out what would work best.

caliq

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Re: 0% Down Mortgage?
« Reply #4 on: March 23, 2015, 11:45:31 AM »
i see no downside minus the fact that you wouldnt have equity ... so if you had to move and the market depreciated you would have to add cash to the pot to sell.  but thats true even if you put 20% down and the market depreciated over 20%.  i would do this if it didnt affect the rate i got then it may be different depending on what the rate difference was ... i have to do some maths to figure out what would work best.

The rate isn't affected, unless you factor in paying for points and such.  Obviously if this ever comes up I'll do a much more thorough mathematical analysis with real-world numbers, but I don't expect it to be an issue for at least several years.  Just wanted to see if I was on the right track :)

bigalsmith101

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Re: 0% Down Mortgage?
« Reply #5 on: March 23, 2015, 12:27:01 PM »
No face punches!  This is a theoretical question only ;) 

There's a thread in the Welcome forum that's talking about paying down a mortgage vs. investing and a question occurred to me, but I think it will push things too far off topic, so I'm gonna ask it here xD

VA home loans are available to veterans with 0% down payments, with no PMI.  Normally there is a funding fee if you put less than 5% down, but disabled veterans are exempt from the funding fee.   As I say frequently (too frequently? hmm) on this board, DH is a 100% disabled veteran.  For this theoretical exercise, assume we could get a market rate on the full loan vs. an 80% loan (which I think is possible/allowed). 

Is there any downside, in this semi-unique situation, to buying with the 0% loan and investing what would be a down payment vs. putting down the traditional 20%? 

The only thing I can see is that the monthly payment will be higher, causing potential cash flow issues (but obviously that's a fairly easy problem to work around).

For me, this is a question of priority and personally, I am risk adverse. I can't help it, but like a few/many other members of the forum,  I would rather have the guaranteed ~4% in my hand (by paying down the mortgage) than the speculated 7%+ return from investments.

So, depending on your level of risk adverseness, it will be up to you. It also depends on your ability to be strict with yourself and invest what would have been the down payment into other investments.

Like you said, the larger payment/potential cash flow issue won't be problem. Because you won't buy more house than you can afford. Unless of course you like dealing self inflicted face punches...

waltworks

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Re: 0% Down Mortgage?
« Reply #6 on: March 23, 2015, 12:33:18 PM »
If you are otherwise financially stable/have plenty of reserves and other investments, and plan to stay for a while, it's a no-brainer, IMO. Put that money to work elsewhere.

-W

RunHappy

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Re: 0% Down Mortgage?
« Reply #7 on: March 23, 2015, 12:51:03 PM »
My SO and I are currently doing this too.  We are both vets and with a VA loan we are getting a much better interest rate than a conventional home loan (I had bad credit many years ago).   We were prepared to do 25% down on a conventional only to skip the PMI.  We decided against putting any money down for the VA loan, because it doesn't really get us anything extra and we can use that money to invest in the market and update parts of the house.

In our case we are buying a house for about $22k less than what it is worth.  We chose a house that fits into our ideal of living completely on one persons salary while investing the other.  For us not putting money down was a no brainer.

frugaliknowit

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Re: 0% Down Mortgage?
« Reply #8 on: March 23, 2015, 02:49:53 PM »
As long as you invest the proceeds and don't buy toys, why not?