Here's a recent comment to my post titled Are 0% Loans Good, Bad, or Does it Depend? My Response that illustrates exactly what I was talking about (and warning people about) in the post:
I live in Michigan and took out a 0% down loan about 3 years ago. Since then housing values have actually dropped in Michigan. Therefore, I am now stuck in a house with a mortgage that is greater than the value. So if I were forced to sell (job loss, illness, etc.) I would have to cover the loss with cash, which at this point I do not have. I am STUCK in my house no matter what. I made a terrible decision to take out a 0% down loan. I can't change that now, but I wish I would have known then what I know now. I listened to the common advice that you are better off buying than renting, even with 0 down. I have since changed my views on money and we are working to be debt-free, but this poor decision from 3 years ago is making that a much greater challenge.
My advice, if you don't have at least a 10% down payment, do not even think about buying a home. This 10% would at least cover the commissions if had to sell your house sooner than expected. Even better, just wait until you have 20% down....there is no hurry to purchase a home. Trust me.
Exactly. This is exactly why I hate these sorts of loans.
I did not put a full 20% down; we took out a 4% loan at a higher interest rate which we have already paid 25% of the principal on (it has been less than a year). Our loans were 30 year fixed rates, as well; none of that 0% crap.
Posted by: Blaine Moore (First Time Homeowner) | February 02, 2007 at 10:36 AM
If the payments weren't any more than rent, he wouldn't have lost much, and if he can still afford it going forward, he shouldn't be in a bad position. If he planned on only owning for three years, though, he was foolish to buy.
Posted by: Lord | February 02, 2007 at 02:28 PM