The Full Nelson

Buy Real Estate For No Money Down

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Did I get your attention? I remember years ago, Carleton Sheets made similar claims on late night infomercials. Carleton's still around, but the “No Money Down” jargon seems to have dropped off his materials. Instead of “get rich quick schemes”, he might want to start promoting legitimate Federal loan programs which can require as little as $100 down.

HUD now offers a sales incentive program in certain high-foreclosure rate areas aimed at putting foreclosed homes back into the hands of owner-occupant buyers. (See http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/salesin...). In select states (notNew York), buyers need a down payment of only $100 to purchase a HUD-owned REO home. They have until October to do it.

The buyer must be an owner-occupant, utilizing financing insured by the Federal Housing Administration (FHA). Standard FHA underwriting guidelines apply, and the sale must be for the full amount of the current list price.

The $100 down payment incentive program has been approved for two of HUD's four national regions – the regions managed by theDenverHomeownershipCenterand theAtlantaHomeownershipCenter. HUD homes in the states listed, as well as theCaribbeanare currently eligible for the program.

New YorkStatedoes not qualify, but FHA loans of up to $1.4m are offered in the state with 3.5% down. To qualify, the borrower must have a good credit rating with 35% of their gross income going towards mortgage payments. Also, the 1-4 family borrower must retain mortgage insurance during the first years of the loan.

Investors have also been able to participate in some of these programs. I found some great information from an Atlantainvestors' website at www.daedalusrealty.com.

Apparently, there is no way to track how many of these loans have taken place, but the Obama administration has made homeownership a top priority. Potential home buyers are bombarded in local papers promoting these programs and brokers are paid $1,000 bonuses to sell HUD owned properties, so there's no doubt there have been tens of thousands of these loans already made.

Home ownership is no doubt a good thing, but at what cost have these loans been made? Is the USsetting itself up for another housing bubble?

No documentation loans, referred to as NINJAs “No Income No Job”, contributed greatly to the housing crisis. At least this go around, income verification will be required. However, if an owner does not have enough skin in the game, it will be that much easier for them to try and walk away from their debts if they can no longer make the payments.

This party might be over soon as foreclosures with Fannie and Freddie are now selling off many of pools of distressed home loans in bulk to private investors. Instead of these properties then resold for home ownership, a wave of new rental product could soon follow suit.

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