What are the risks / cons with buying home no money down ?

it will be used as rental propertyWhat are the risks / cons with buying home no money down ?
I always want my rental property to cash flow enough to pay for its own principal, interest, property taxes, upkeep and repairs plus a little more for unseen expenses.





I figure my profit will come over the years as the rents increase and much later when I or my heirs sell the property.





If I put no money down and can do that then great! If I need to put a chunk of money down to do that then I do.What are the risks / cons with buying home no money down ?
Well first the first one that comes to mind is having to pay PMI (private mortgage insurance) that can add quite a bit to your payments and wont drop off until your loan to value is less than 80%


So on a $200,000 mortgage you would have to pay off $40,000 on the note before you can drop that PMI
If you will not have negative cash flow, the risk is all with the lender. It is VERY HARD to get a 100 percent loan now.
There are several risks.





1) The worst one - which many people are finding now - that if you get in with nothing down AND NO EQUITY then if the market stalls and prices go down - you are stuck owing more on the house than it is worth. You can't sell it, and it will cost you lots of money to get rid of it.





For instance, you buy a $200,000 house for $200,000 nothing down. Then the value of the house goes down to $190,000. You can't sell it without shelling out money (which if your are zero down, you probably don't have) so you probably end up foreclosed and bankrupt.





2) Again, with all of it financed, your payments are the highest possible. If this is landlording, it is almost impossible to get enough rent to pay the mortgage and expenses - negative cash flow - or Alligator in investor parlance. it keeps eating your cash every month.





3) Lack of flexibility - If you have equity in a property you have lots of options to sell, rent, lease option - all profitable. However - in low equity situations your options are limited - especially in a tight market.





Now, that said - this doesn't have to be true. This is assuming that Nothing Down equals no equity, and that is absolutely not true. I have bought many properties with zero down, but at a great price discount, so I had good equity even with no down payment. Two of my first two properties I bought were zero down.





The first was a freshly rehabbed property worth $45k (okay - Looooong Time Ago!) Which I bought for nothing down for $38k. I only assumed the rehabber's loan (easy to do in those days). He was happy to do it because he had rehabbed it then refinanced it and took his profit from the loan - even though he sold it cheap he still made money - sold it fast and didn't have an empty house eating payments. Win-win. So I had a house with equity and good payments even with zero down (I used credit cards to pay closing costs).





Years later I moved to another city and bought a fixer-upper. I was in the Army - the house belonged to an Officer stationed in Germany - and the tenant and his dog had torn the place up. Nice enough house, but the stench made your eyes water. I bought it on a zero down VA loan, and had the carpets and roof replaced as part of closing (so it was added to the loan). I bought it for $72k and we went in and with the new floor in and roof, plus cleaning, painting and repairs we did, it was a $95k home. Nothing down - except for the cost of paint and some plumbing parts. Good equity, reasonable payments.





I've bought many houses, and about 50% of them have been zero or low down (under 5% down). As long as you purchase them at a good price, the zero down payment doesn't matter. However, if you are buying it at or near retail price - zero down is dangerous.
You should not buy with no money down if you expect to move in a few years.





You start out in a negative equity position because if you needed to sell, you would have sales commission and escrow costs which will run about 8% of the sales price.





If the market is falling, you are in an even worse position.





You will pay a higher interest rate. Ideally, you have most of the propety financed at a reasonable rate and the risky part at a high rate.
This is a moot point since no lender will loan you 100% down for a rental.
Very few, if any, lenders will lend 100% on investment property. You maybe able to do an 80/20 or some variation of that -- an 80% 1st mtg and the rest in a 2nd mtg -- but again, many lenders only do that for primary residences.





The rate will be higher.


You'll have to escrow taxes and insurance.


You'll pay mortgage insurance.





But the biggest problem is going to be finding a lender to give you a 100% loan.
D net is right it is very hard to get a 100% .....but to answer the question I dont find it to be more risky than buying a home with 5% down.....the differnce in you payment will be very minima...good luck with the venture
If this is investment house, you cannot finance 100%. You have to put down at least 25%. If you are buying this property as your primary than you will be able to finance 100%. Your main concern should be if you can cover your mortgage payment with your rent or not. Most likely NO. If you have extra $$ to add onto the rent to pay the mortgage payment then I guess you are ok.