Consider These Programs as Short Term Plans

Regardless of which approach you choose, you should always look at the No Down Payment approach as a short-term method used to obtain long-term gain.

This is especially true when you consider the initially higher interest rates of most No Down Payment programs. But don't let that scare you. It is crucial for the savvy buyer to see those higher interest rates as SHORT-TERM.

Always remember that the No Down Payment program is only used to get you into the property. Once you obtain the right property, you will soon be able to refinance to a lower, more affordable rate.

For example, consider the investor with damaged credit and no money who purchases a property for $100,000—with no down payment. The initial interest rate could be very high, because of that investor's high-risk situation. However, that same investor can refinance to a lower rate once the investor's credit improves or a subsequent appraisal shows some appreciation.

The investor can do this because of the property's appreciation or equity. At the time of purchase, the no down payment program's Loan-to-Value (LTV) ratio is 100%; the inverse of the LTV ratio is the down payment, which in this case is zero.

But if the property is subsequently re-appraised at $111,000, a refinance to another $100,000

loan would be at an LTV ratio of 90% ($100,000/$111,000). Thus, the refinance could replace the No Down Payment loan with a conforming, lower rate, conventional mortgage loan.

  • A $100,000 loan on a $100,000 purchase is an expensive 100% Loan-to-Value (LTV) mortgage loan.
  • A $100,000 loan on a $110,000 appraisal value is lower-rate 90% LTV refinance.
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