Should I use No Down Payment to Buy?
UPDATE: This is no longer a viable option thanks to rampant abuse nationwide !
Updated in July 2011: Right now, expect to put down a minimum of 10% down payment. You need to have a pretty decent FICO score and the condo in question needs to pass some test that are designed to judge the financial strength of the condo association. Also the number of foreclosure condos has decreased and appears to be past it's high water mark in spring. Now is the time to take full advantage of these interest rates, they are as low as they can possibly be, and I don't expect to ever see them this low again. JG
This option has changed from a tool of low income buyers that simply lacked any cash to put down on a purchase to a very smart investment vehicle for the disciplined investor. One of the main factors involved in this is the likelihood that you will not own your condominium for a very long term, as most Lake of the Ozark Condos “turn over” every 3.5 years on average (this is my estimation). The main idea at work here is that you will be able to take the money saved and will consistently invest it instead in things such as stocks or mutual funds or something similar. You can do this by taking the money you would have otherwise used as down payment and invest those same funds somewhere else, provided you put your money to work, and don’t spend it frivolously. Here’s an example to illustrate. If Condo buyer "A" buys a condo for $200,000, and puts 20 percent down, then they have $40,000 in equity. Over the next five years, the property appreciates $100,000 in value. Condo buyer "A" now has $140,000 in equity.
Condo buyer "B" buys a condo for $200,000, and puts no money down. At the end of five years, that same unit is now worth $300,000. Consumer "B" has $100,000 in equity, which is the same appreciation as Condo buyer "A", a net $100,000. This shows us that your down payment has nothing to do with your rate of return. I agree with the concept, and these concepts should most definitely be explored.