Buying A Home With No Money Down - Part 2

Previously I covered how builders use a loophole in the system to sell you a home without using any of your own money. Now one question that seems to come up is if this is legal. The answer is yes. The big surprise here is that the money is added to the mortgage. This is the way of getting needed money to average folks by using gift funds.

Let's take a look at closing costs. Who is going to give you the money for this? Remember previously I stated the builder can contribute this. And what do you think the builder does to get his money back? You guessed it. That amount get's rolled into the mortgage. So if the initial mortgage was $150,000 and you add the closing and down payment costs you are looking at really borrowing $159,750. How is his possible? Simple, the builder has to make sure that the home you are buying will at appraise for the amount you need to borrow.

The federal government watches the validity of appraisals and the frequency of foreclosures. Builders and lenders are very aware of this. When you do buy a home with zero down and you also roll the closing costs into the mortgage, you are most assuredly buying a home with dollar value.

I must caution you about crooked builders and greedy lenders. Several years back there was a class action lawsuit in Pennsylvania where a group of builders used phantom appraisals and had a participating lender approving the mortgages. These loans were NOT government insured so therefore certain criteria was not followed. Some of the home buyers had mortgages on houses for $130,000 while the real value of the homes was $85,000. This finally came to light when a few of these poor folks tried to refinance to take advantage of lower interest rates.

My last word of advice on this matter is to do your homework. Do your research on the builder. Most states have regulatory agencies that oversee the construction industry. They have records of any complaints that may have been filed against builders in their state. It's your responsibility to know and understand everything about closing costs, interest, prepaid items, and origination fees. You are going in debt for up to 30 years. It's your investment and you should be aware of everything.

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