Something for nothing.  It doesn’t exist.  This is a plea to all of you who are looking at mortgages with

as little money down as possible.  Please – come up with the cash.  I don’t mean come up with all of the cash to buy the property outright, but do all you can to come up with 20% of the cash.  In the market we’re in, with extended inventory and longer selling times, lenders are getting tighter on their restrictions on loans.  Gone are the days when they’d lend to anyone, under virtually any circumstances, because they know they’d just sell it to someone else in the secondary market.  Which makes this story, from the Washington Post, even scarier.  Thanks to Kim for bringing it to my attention.

The title of the article, by Elizabeth Razzi, is "Something For Nothing Home Deals".  In the article, Elizabeth tells of a growing "company" in the Northern Virginia area called Metro Dream Homes.  Members of MDH (we’ll call ’em that from now on, they don’t need any publicity) are invited to join (sounds like the pyramid scheme Quixtar, to me), so it’s an invitation-only kind of thing.  They buy a house, sometimes for far more than the asking price, and often without a down payment.  The catch is that the seller agrees to give back 10-15% of the sales price to the buyer, who returns it to the pockets – er, account – of MDH. 

MDH says it will take that cash, invest it in other businesses, and the profits made from those businesses will go to fund the monthly mortgage payments of the MDH members, and on an accelerated schedule that will get the house paid off in FIVE to SEVEN YEARS!  After five to seven years of PAYMENT-FREE living, the homeowner sells or refinances the house, and the homeowner and MDH split the profits.

Oh, MDH says they’ll donate some money to charity, as well.

Awesome!  Incredible!  What a sham … I mean, what a deal!  Buy a house with no money down, find a mortgage worth more than the value of the home, and then never make a payment on the home!  And after a few years, you’ll get out of the house and split the profits with MHD.  Something for nothing.

Please be careful … take a look at the facts:

• An estimate 10% of the mortgage market has been shutdown with subprime loans
• Alt-A (Loans below prime, but above subprime) mortgages have taken
  a huge hit, shutting out another indeterminate amount of buyers (~2-5%).
• Adjustable Rate Mortgage calls have hit many buyers VERY, very hard.
• The Fed chose to keep interest rates steady, pushing mortgage rates higher than expected.
• Time on the market has increased significantly for most markets and overall
• Mortgage defaults have climbed … and that’s not likely to slow anytime soon.  (It should be noted that defaults bring down selling prices in a particular locality, so your neighbor’s inability to pay their mortgage DOES affect you)
• Major homebuilders are reporting significant drops in revenue and net income
• Mortgage REITs and Mortgage companies are going out of business

All of this swirling around your head, and you STILL want to pay more for a property and put nothing into it? 

Thankfully, and to the best of my knowledge, we have not seen anything like this in our area.  I have been involved in one deal several years ago where the sellers took a higher-than-list price on their home, then deposited the difference (about $6000) into an account that would be used to apply to the buyer’s closing costs.  The account principals kept a percentage (less than 15%, I think) of the total amount contributed, and it made me nervous.  We had an attorney look at everything and pronounce it as legit, but it was still a little awkward.

MHD?  Where’s there’s smoke there’s fire, and trust me – this is part of one BIG fire.  If you’re in the market for a mortgage, contact reputable lending professionals like Angela Anderson at Salem Financial.  Or Dave Shelor at Prosperity Mortgage.  Or Brad Denardo at National Bank of Blacksburg.  Need more?  We only use lenders we know are going to service our clients with the utmost integrity, each and every time.  And if you have a question about something you find and want to get a second opinion, please don’t hesitate to contact me.