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The truth about "Zero Down" advertising

In the Metro Detroit area the popularity of FHA and VA mortgages is
higher than I Zero down mortgages in Michigan have witnessed in years. One of the reasons for the
increasing use of these mortgages is the potential for
the borrower to acquire a home for no money down.

"Teaser" ads that I'm seeing in many places tell potential buyers that they can purchase a home with "Zero Down". This is true. With the VA program this can be done. With FHA a down payment assistance program is needed.

What the "teaser" ads fail to mention is that you will still need money in your pocket/ savings account/ under your mattress to purchase a home.

If you are considering purchasing a home in Macomb County here are the typical upfront costs to purchasing a home:

Good faith deposit. (Could be as little as $250, or if purchasing a foreclosure could be a minimum of $1000)

Home inspection. (In our area home inspections range from $225 to $375 depending
upon the size of the home and the inspectors fee for service)
One year pre-paid homeowners insurance policy. (Depending upon the area of the home,
the features of the home, and the price of the home the cost for this policy will usually
range between $500 and $1000)
Appraisal fee. (Some mortgage lenders want this fee paid when ordering the appraisal,
others will have it included as a fee to be paid at closing.)

FHA and VA mortgages allow the purchaser to ask the sellers to pay their closing costs.
Most of the time this isn't a problem for your buyers agent to include on your offer to purchase.
If the closing costs cannot be included in the purchase price of the home, then you may have to
pay part or all of them yourself.

The next time you see those "Zero Down" ads keep in mind that they mean zero down payment
on the mortgage, and NOT zero upfront dollars out of your pocket/savings account/ mattress stash.

If you are considering taking advantage of the buyers market in our area please select
a buyers agent to help you with this process. He/she will update you on all that you need
to be aware of prior to selecting homes to view. Being well prepared will help to make
your new home purchase a pleasurable experience.

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Posted by Kris Wales - Macomb County MI real estate blog & homes for sale search site on 03/25/2008 05:46 AM

Comments (15)

fha, va, zero down, metro detroit, macomb county, buyers agent

This post has been included in Michigan Information Macomb County, MI Information

15 Comments on The truth about "Zero Down" advertising

MAR

2008

Psst. Did you ever start that wordpress blog like you were thinking (bullied) into? I am your subconscious speaking.

Chris: Funny you should ask :-) I just signed on Saturday (Bluehost per your recommendation) Am diligently plucking away at it (getting new photos of our area, jotting down article ideas, writing...) Hope to have it ready for viewing within 4 weeks.

No different than the advertising you see for "no closing cost"

An ad is an ad. You never sell the price or the terms in the ad (it is your loss leader) you place the ad to generate traffic and find your deal in the interview process.

Thanks

tony

Tony: Those "no closing costs" ads scare me. There is a price for "free" and people sometimes fail to realize that until it is too late. I fully understand why the ads are written as they are (to generate leads). I simply wanted to make potential buyers aware that there ARE out of pocket up-front costs to purchasing a home.

Dont forget money for reserves in escrow.

Then why do they call it zero down if you have to come up with all those hidden costs. Is this not deceptive advertising?

I have to agree with Kris - I see ads all the time with some crazy deal written on them. The consumer needs to be aware of these crazy things and that is where we come in.

Laura: Money tucked aside for reserves is always wise and sometimes mandatory for the mortgage. Escrow pre-paids I can usually get included in the "closing costs" provisions of the purchase agreement.

Michael: No, it isn't deceptive advertising. The "Zero Down" typically refers to the amount of a down payment on the mortgage. The out of pocket expenses though are not related to a mortgage down payment, but consumers do find it very confusing!

Vincent: Thanks. I do think it's important that upfront costs be discussed. So many consumers believe that they can enter into the transaction without having any costs whatsover and that is rare. Very rare.

Even though it is not bait-and-switch advertising it is intended to get them in the door...then they can "sell" them.

Gary: I have often touted the benefits of the zero down mortgages to first time home buyers, but I am becoming even more aware of being upfront in the articles/ads about costs for the inspection, good faith deposit, etc. Thanks Gary.

Hi Kris,
It all goes back to "if it sounds too good to be true, it probably is". When will consumers learn that there are NO FREE LUNCHES!

Cynthia: I don't fault the consumers at all for being confused. It's the 10 word ads that are confusing, and frankly I've been guilty of that myself. No more. I'll post the articles and also explain that there are certain costs that one can expect.

Kris--Good of you to clarify this for all those considering buying with zero down financing. There are always costs to buying a home. Understanding them is the difficult part!

Kris - this is a great post for consumers, I posted on this issue last year also. Many buyers don't realize the out of pocket expenses even with zero down.

MAR

2008

Teri: I've been guilty of this type of advertising before and vow to make darned sure I'm not guilty of it again. Thanks Teri.

Mike: I'm sure you receive the phone calls as well that go something like this: "I am ready to buy a house and see that -0- down is still available." When we talk to the consumer further we realize that some do not have even $1000 tucked aside, let alone anything more than that. Thanks Mike. Perhaps it's time for you to repost your article?

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