Can a loan help pay for the down-payment?

Ksahlberg · May 2012

I'm new to this whole process. My rent is up this month and I love the condo I currently live in. There are town homes as well as single family houses in the complex. Doing the math, if I had a mortgage, it'd be cheaper than what I pay for rent. I was approved 3 years ago for $180K so I'm sure my husband and I together making more $ would be approved for more than that now. There's a condo listed at $150K that we're interested in, but we have no savings for a down payment. Is it possible to get a loan for more than the cost of the unit to put towards a down-deposit? Or can we put $0 down? The condo is FHA approved.

lindyanne · May 2012

It can but if you don't have any money to put down I wouldn't do it. Just taking out an unsecured loan you'll get a very high interest rate. Do you have an emergency fund? If not, buying is a risky move. What if something breaks and you have to pay for it? What if the condo association does a special assessment and you have to pay $2k?

kaylie622 · May 2012

Very few banks are doing no down payment loans these days. There are programs like VA and USDA, but even with those they would not give you the mortgage unless you had a certain amount in savings for emergency expenses. You also need closing costs. FHA requires at 3.5% down payment, but the fees are high so you're paying a premium for your loan.

Your best bet would probably be to renew your lease for another year and save up the DP. Most mortgage lenders will also want you to have two or three months worth of mortgage payments in savings after you pay your dp+closing costs.

ArcadianDreams · May 2012

It's possible but like the pp said, much less common than it used to be. Zero-down programs are still out there though. You will have better odds if the condo is actually worth more than 150k - lenders generally do not like to approve more than the value of the property. It can't hurt to talk to some local banks and find out if there are any options out there.

atlcatlover · May 2012

I have to echo pp. If you don't have any savings, you are nowhere near ready for home ownership. While your mortgage may be cheaper there are countless other expenses that come with owning a home and you need to be fully prepared for those. I agree that you should continue renting and save aggressively.

Nechie122 · May 2012

Don't be so sure that it would be cheaper than renting once you factor in all the costs associated with homeownership (taxes, insurance, HOA, maintenance). I'm sure you pay a premium to rent, but on a bad year, the difference might be negligible.

If the housing bubble taught us anything, it's to stay away from subprime mortgage lenders. Don't try to do anything shady -- until you're in a position to save the $7500 down payment, I'd continue to rent.

brianabrad · May 2012

I'd have to echo the other ladies. Until you have money for a down payment and a nice rainy day fund, I'd keep renting. Buying like Nechie said is not always cheaper than renting when you consider the other fees. You also need to consider increases in the cost to hear and cool the home since the home you buy will likely be larger than your current rental. Don't forget that right now if something bad happens its probably your landlord to foot the bill, even in a condo with an HOA to take care of somethings you'll still have cost associated with repairs.

bellebride116 · May 2012

When we bought our condo MANY years ago before we got married we didn't put down a down payment {the market was obviously very different back then}. It was part of a first time home buyers program we got into. Of course we were obligated to carry PMI. However, this helped us save SO MUCH in the long run. While we could have put the money down we didn't HAVE to with this program and we have so much more money in the bank now because of it, even after having to pay the PMI. We're able to put down so much more on our next house now because we never touched that original money. Granted we still owe a lot on our condo this way, it still works out in our favor, even if when we go to sell we have to add money {which of course no one is ever hoping to do}.

Looking back it was the best move we made. While it still came out more than rent {with taxes, PMI, HOA}, at least we were putting money into something that was OURS and not giving it to someone else for rent.

Although, I have to admit, in hindsight I would have chosen a single family rather than a condo because I feel our HOA is a WASTE. At the time we didn't need the space so the condo was really appealing, and while now it is still only just the two of us and our dogs, we are bursting in this tiny condo. We can't wait to move!

So yeah, before committing to a condo definitely look at ALL your other options.

spikeinc · May 2012

Also, don't forget that you aren't just paying for the mortgage but for property taxes and homeowner's insurance. That could add up to another $1000 a month onto your mortgage payment depending on what you buy and where you live.

We just applied for a loan and got one. In order to qualify, we had to have the downpayment, a certain amount of money in the bank plus closing costs. This is the second time I will be closing and the costs were very comparable for closing costs which were approximately 15K. How could you afford that without savings. Not to mention the other expenses if you got a condo which include HOA fees every month as well.

Keep saving. Don't get into debt and keep a great credit score. It will happen when you are ready.

kimberlygo · May 2012

We took out a loan against my 401K to cover some of our closing costs. It's not a traditional loan in the sense that you're borrowing against yourself, so if you don't pay yourself back, its considered a withdrawal and you're taxed.

CCinLove · May 2012

bellebride116:
When we bought our condo MANY years ago before we got married we didn't put down a down payment {the market was obviously very different back then}. It was part of a first time home buyers program we got into. Of course we were obligated to carry PMI. However, this helped us save SO MUCH in the long run. While we could have put the money down we didn't HAVE to with this program and we have so much more money in the bank now because of it, even after having to pay the PMI. We're able to put down so much more on our next house now because we never touched that original money. Granted we still owe a lot on our condo this way, it still works out in our favor, even if when we go to sell we have to add money {which of course no one is ever hoping to do}.

We also bought a few years ago with $0 down, and I feel completely different about it. Although we kept the money in savings that we could have used for a downpayment and have it for the new house, we were paying interest on that money. If we had used it as a down payment, we would have been paying interest on less of a balance. We also had a slightly higher rate in exchange for that $0 down. And it really sucked to have to bring a big fat check to closing.

I would be very wary of purchasing in your situation. Does that "lower" mortgage include HOA, insurance, and taxes? Do you live someplace where you would want to live in a condo long term, or will you want a SFH in a few years.? I live in a very desirable neighborhood, and even people who bought homes 8-10 years are selling for less than they paid. Are you prepared to sell at a loss if you don't plan to live in this condo forever? You can no longer count on breaking even after 3-5 years.

=Jewel= · May 2012

bellebride116:
Looking back it was the best move we made. While it still came out more than rent {with taxes, PMI, HOA}, at least we were putting money into something that was OURS and not giving it to someone else for rent.

This is exactly what I thought when I bought my condo 5ish years ago, and it is a huge misconception.

After years of paying the mortgage of my condo, I am now $30k in the hole. Had I been paying the mortgage on someone else's condo (rent), I would have broken even.

Understand that a purchase needs to be a long term plan. If you need to move in 3 years, and you are underwater, what will you do?

And ditto everything else PPs said. It doesn't sound like you're ready.

srs5624 · May 2012

bellebride116:

When we bought our condo MANY years ago before we got married we didn't put down a down payment {the market was obviously very different back then}. It was part of a first time home buyers program we got into. Of course we were obligated to carry PMI. However, this helped us save SO MUCH in the long run. While we could have put the money down we didn't HAVE to with this program and we have so much more money in the bank now because of it, even after having to pay the PMI. We're able to put down so much more on our next house now because we never touched that original money. Granted we still owe a lot on our condo this way, it still works out in our favor, even if when we go to sell we have to add money {which of course no one is ever hoping to do}.

Looking back it was the best move we made. While it still came out more than rent {with taxes, PMI, HOA}, at least we were putting money into something that was OURS and not giving it to someone else for rent.

Although, I have to admit, in hindsight I would have chosen a single family rather than a condo because I feel our HOA is a WASTE. At the time we didn't need the space so the condo was really appealing, and while now it is still only just the two of us and our dogs, we are bursting in this tiny condo. We can't wait to move!

So yeah, before committing to a condo definitely look at ALL your other options.

This makes absolutely no sense whatsoever.

Ditto the others. If you're looking to go into debt to afford to buy a house, you aren't ready. Keep renting for another year or two (or three) and save up some money for a down payment, closing costs and start-up costs.

Juris11 · May 2012

I would also note that, in general, a condo or townhome is a MUCH less sound investment than a single family home. (Unless you are in a very desirable city neighborhood that doesn't have single families-I'm guessing this is not the case since you mentioned a complex)

Most likely, you are going to find yourself paying on a place that isn't worth what you paid. My BIL bought a condo at the height of the market, and he can't give it away. And there are brand new condos that can't even sell. In your case, this would be even worse, since you will have no equity in the condo, but still be liable for the full amount remaining on the loan.

Quiksilver620 · May 2012

we didn't have any money saved for a DP so I withdrew money from my 401K. My credit union also had a first time home buyers program where they pay all closing costs.

Even with the bank paying the closing costs, we still had to bring a check for a little over 13K to the closing.

good luck

Can a loan help pay for the down-payment?

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