An Old Dividend Stock Investment Idea, for a New Generation

Death and taxes! The certainties of life! And then, of course, there are mortgage payments, utility bills, phone bills, car payments and thirsty automobiles. Add that to grocery and clothing bills, and there appears to be more then just death and taxes as certainties of life.

Having knowledge these expenses are fixed for most of your life, why not begin a plan to take care of expenses? Why not have investment plans that will pay all bills without using any out-of-pocket monies?

Is this a case of “Sounds too good to be true?”

These types of loans are written every day. Let’s take a look and see if one of these zero money down mortgage programs is a fit for your home buying needs.

The 100% Loan with PMI

Mortgage down payments are necessary buffers used by lenders to protect themselves from potential loss due to costs of foreclosing a property in case of loan default.  A 20% down payment is considered sufficient protection, and is therefore industry standard.  Any amount less than that will require some other method to reduce lender’s risk.

One such method is private mortgage insurance, or PMI, which is paid by borrower for insuring lender against loss.  You will have to pay it until you have built up 20% equity in your home.

When obtaining this type of no money down loan, you are simply taking out a mortgage loan for 100% of home’s cost and paying PMI.

The 2/28 or 3/27 Loan

If you decide to take a 100% loan, you may be restricted to 2/28, 3/27 or similar loans, especially if you have low FICO scores or have been determined to be a sub-prime borrower for any reason. Depending upon whether it’s a 2/28 or 3/27 loan, interest rate is fixed for first two or three years and then is variable for remaining life of loan.  Loans in which interest rate is fixed for a number or years and then becomes variable rate are also known as hybrid loans.

If your FICO scores or whatever conditions caused you to be classified as sub-prime can be remedied during fixed interest rate period, then you can apply for a more conventional mortgage before variable rate period starts.

The 80/20 Mortgage

This is one of most common programs and it works like this: The lender writes you a mortgage for 80% of selling price of home and then either same or an affiliated lender writes you a second mortgage for remaining 20% of home’s value.

This is a good solution for avoiding PMI (Personal Mortgage Insurance) payments for borrowers who do not have a 20% down payment available.

One of down sides of this solution is that you usually have to pay two sets of closing costs, but those costs will still be far below what a typical 20% down payment runs.