Investing in Real Estate With No Money Down—Is It Possible?
Posted on 3rd Sep 2016
Analysts of the subprime mortgage that occurred ten years ago identified an important factor underpinning the crisis: interest rates were low, home prices were rising, and buyers were thus eager to enter the real estate market. Lenders were eager to lend as well because mortgages could be bundled and securitized by investment companies like Goldman Sachs.
To fulfill the demand, lenders ignored traditional convention wisdom in assessing buyers. They gave mortgages to buyers who could not afford their purchases. These buyers had inadequate proof of income, low credit scores, and did not have enough money for a down payment. Lenders gave them adjustable rate mortgages since these buyers didn't meet the standards for financing at a conventional fixed rate. Once interest rates rose, the buyers could not afford their payments, so they defaulted and went into foreclosure. The subprime mortgage crisis erupted as a result. It fueled the recession of 2008, and people saw the need for a new real estate law that would prevent this kind of activity in the future. The recession greatly affected New York real estate in addition to the economy at large.
The Dodd-Frank Act eliminated the most troubling of these practices that contributed to the crisis; thus, buyers who are fiscally sound might find that it is possible to invest in real estate with no money down, but they must think carefully before pursuing this strategy. Buyers should think about the factors that will prove they are able to sustain payments over time, notwithstanding a very low down payment.
Some of these factors might include having a good credit score, savings, investments, and income to sustain a mortgage. If the buyer already owns a property which brings in regular income, that is a plus, especially if the buyer owns the property free of all encumbrances. The income from this property could then be diverted to pay for the mortgage on the newly purchased one.
To learn more about investing in real estate with no money down, you should contact a real estate lawyer today.