experts: real estate column Monday, December 02, 2002

Yes, you can buy a home with no cash down

But you're best off working with realtors who know what to do and care enough to write the offers, or use a mortgage broker

By Ozzie Jurock

This article appeared in The Vancouver Sun on November 23, 2002

YOU DO NEED AN EXPERT ... you do! Yes, you do need someone who knows. A lot of experts don’t know they don’t know. Every week I receive at least 3 inquiries as to “Do the late night TV courses work?” They refer of course to the ‘no money down, get rich quick’ courses. Do they work, is it really that easy?

Of course the answer is yes and no. Yes, they work sometimes - no it isn’t easy. Particularly in a hot market (As in the lower Mainland currently) the likelihood of interesting a seller in a ‘vendor take back’, an ‘abatement’, carrying a ‘deferred no interest’ second mortgage, a ‘no payment mortgage’ or trading your motorcycle is VERY slim. Slim but not impossible.

When I wrote about it here last in December, I was also admonished by a Realtor that the ideas expressed were too simple - everyone knew what to do and in any case - they don’t work. Well, of course, this realtor worked on the Westside, where the average house price exceeds $600,000. More importantly, he did not care to know any details. In this market he did not have to have any ‘ innovative’ ideas ... In fact it was a lot easier to poo-poo the idea, then seeing whether it could work.

Which brings me back to the questions of experts. It is clear that if YOU do not have the big cash you need to buy on the Westside or no cash at all, you probably can’t buy on the Westside, but you also can’t deal with that Realtor. You need someone that is an expert in finding properties with unique situations and you need to deal with someone, that a) cares about you and b) takes the time. You must also realize that it is not easy, needs work and the right situation and YOU have to do a lot of the legwork.

Last week one of my subscribers managed to buy a home with the seller carrying a deferred payment second mortgage, a month ago one of my subscribers friends bought 2 suites from an absentee owner with no cash, assumed the mortgages and has 2 years to pay the rest ...

They both worked with Realtors that knew what to do and cared enough to write the offers.

Another real great example right now is the question of mortgage brokers. I have more than anyone else- urged everyone to use one ... to make sure you get the best deal. In fact the use of mortgage brokers is sharply on the rise. Yet, last week at a function, the mortgage broker at my table did not know that in Vancouver today ANYONE can get a 100% mortgage. No fancy footwork, no secret missions, and no special courses ... ANYONE!

What? No late night course, no California tax sale, no trailer goodies, no flipping of the $34,000 Detroit neighbourhood special?

Yep, you can buy ANY HOUSE in Vancouver up to $400,000 without ANY CASH. It helps, if you just did not have your car repossessed and you are gainfully employed (as in being able to make the mortgage payments) but yes, your can do it.

No money down Mortgages range from $75,000 to $400,000. Houses or Townhouses only! You must have good credit, have been employed for 2 years. (Examples: $400,000 = $3104, $200,000 = $1552). You can even get a mortgage of $500,000, but must put down 20% on the balance between $400,000 and $500,000 ... thusly (Thusly? Thusly!) You can buy a $500,000 property with $20,000 down.

More interesting is the fact, that with the myriad of mortgage products out there you need a mortgage broker with the willingness to be creative and understanding and the know-how to put some numbers together.

How about this? Did you know it is cheaper to get a ‘no money’ at 7.05% than a 5% downpayment mortgage at 5.5%?

What? Well, this is why you need an expert. I would venture to say that half of the mortgage brokers out there, haven’t done the math. Talked to Harvey McCallum of Strategic Mortgage Professionals who worked out, that in some cases getting a ‘no money’ down mortgage can be cheaper at a higher interest rate than the 5% down payment mortgage with a lower rate. Currently, in Vancouver, there are mortgage companies that offer a 3-year term mortgage with NO MONEY DOWN at 7.05%. When you do the numbers it may be cheaper to go that route then to take out a 5% down payment CMHC mortgage at 5.5%! Both mortgages bear a fee. CMHC’s fee is 3.75%; the no down payment mortgage carries a 4% fee. But then with CMHC you are limited to a $250,000 purchase (with GE capital the 5% down mortgage has just been made available on properties up to $300,000 homes). Yet, because of the ‘no down payment’, the higher interest rate mortgage can work out between $800 and $1,300 cheaper over three years than actually putting up 5% cash! Too good to be true? Well, take a look:

Zero Down Costs Less Over 3 Years - Than High Ratio 5% Down @ 5.55%

PURCHASE PRICE
You Pay This Much
Zero Down 3 Years
You Pay This Much 3 Years
5.55% 3 Years + 5% Down
$200,000
$1464 x 36 months
Total = $52,700
$1209 x 36 = $43,500 + $10,000
Total = $53,500
$250,000
$1829 x 36 months
Total = $65,800
$1511 x 36 = $54,400 + $12,500
Total = $66,900
$300,000
$2195 x 36 months
Total = $79,000
$1814 x 36 = $65,300 + $15,000
Total = $80,300

So, there - no late night TV special, no worrying about strange clauses, no need to explore dark secrets. Just a regular mortgage, at a slightly higher face rate ... which actually works out cheaper. Now that is why you need an expert that knows - and cares.

Ozzie Jurock is the publisher of Jurock's Real Estate Insider an independent real estate advisory service. You can reach him at 604-683-1111 or e-mail ozzie@jurock.com.




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