CHOOSING A LOAN PRODUCT THAT IS RIGHT FOR YOU
Owning a home can truly be a blessing, or it can be a curse.
I have seen this scenario play out over an over again here in Huntsville, AL. And, I needed to get a message out to prospective new homeowners or second timers that are thinking about buying using a 100% loan to value product anywhere in the country. Choosing the right time to buy your dream home can actually be a dream (cue: fluffy white clouds, sheep, and harp) or turn into your worst nightmare (cue: lightning, thunder, and violent rain) later down the road. There are several things you need to consider before jumping into that "everything you want", fully upgraded, at the top of your price range, dream home.
How much money are you putting down? Think hard about this. We've all heard that the more money you can put down on a home, the better. Lately, many people in this country have somewhat ignored the reality of why this might be a good practice. Consequently, we have found our country negatively affected, which includes you. So, what does this really have to do with 100% loans?
Well, my main reason for this composition is to help you understand some needed RISK MITIGATION in the case that your job relocates, you get married, you lose your job, or some other reason, etc..... that begs the need to sell your recently bought home. Everyone would love to know 100% that they are going to live in the same place, same job location, same "stable" company, 3-5% raises every year, same marriage, same financial situation, same health, same healty dog, same appreciating country, same everything, nothing unexpected. But, reality is: life things happen unexpectedly = RISK.
If you invest (yes the biggest investment you will likely ever make) into a brand new (or any) home "living on the edge" with a 100% (Conventional, USDA, VA, FHA Step-up, or other) loan product, what are you going to do if you need to sell it, the market has tanked, you have little cash reserves, you can't sell it for sale by owner or FSBO, and you need to hire a Realtor to sell it fast? You are looking at 6% Realtor fees on average, 3% closing costs usually paid by the seller, the cost of repairs, and any percentage of depreciation due to neighborhood competiton and your overall real estate market. Let's just estimate repairs and depreciation add to 5%. Adding these percentages up alone comes to around 14%. Let's say that for some reason you need to sell you house in 1 year after buying. If you even want to think about breaking even, you are gonna need more than that 1% equity you now have after paying on your 100% loan-to-value mortgage for 12 months.
Dear First Time Home Buyers (and,.... second through last time homebuyers for that matter),
Recommendation: Buy a house like your grandmother had to, and put down 15-20%. Rent and save until you get there if necessary. You can't mitigate all the risk in buying a home with a loan, but you can at least mitigate some of it by adding this layer of padding for your peace of mind. That way, when the rain comes (and, IT WILL RAIN, trust me), you've already got an umbrella.
Sincerely,
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