Money Management

Should you consider a zero down mortgage for your home’s purchase? Find out here. [[{“value”:”

This morning I heard on the news that United Wholesale Mortgage, the largest mortgage lender in America, is offering what is essentially a zero down mortgage. It works like this: The lender writes a 97% mortgage with a 3% second mortgage, but it’s the same thing as a zero down mortgage. I couldn’t be happier to see this.

I say this as someone who was on the front lines of the real estate market when zero down mortgages were all the rage in the 2000s, before the market crashed and the Great Recession made fools of us all.

If you’ve been sitting on the housing market sidelines because you’ve not been able to hustle up enough cash for a down payment, this might be a financial product you’re considering. Let’s take a look at what it is and if it’s going to set you up for failure.

The problem with underwater mortgages

Buying a home with no money down has long been viewed by some as some sort of moral failing. After all, if you don’t put anything into your purchase, why would you stick it out if the going got tough? People who say this, of course, fail to recognize what a home is and what you’re actually putting into it every day of your life.

It’s not a storefront that you’re simply renting out to someone else; it’s your home. It’s the place where you might raise your children, where you have game night with your friends, where you decided that you wanted to go back to school or learn to forge swords in the garage. A purchased home is a foundation of social stability, whether you have tens of thousands of dollars to bring to closing or not.

The problem, some people argue, is that once your home isn’t worth as much as you paid for it, you’ll walk away. And yes, that definitely happened pre-2008, but it was a very different time and homes were substantially easier to secure. People were also not staying in them as long. According to a 2018 analysis by Realtor.com, homeowners now typically stay in their home about 13 years, rain or shine (though that is likely longer considering post-pandemic trends).

Honestly, this data point alone counters the whole idea that if your mortgage goes upside-down (you owe more than your property is worth), you’re going to boogie. Because, much like with the stock market, corrections happen within the housing market over that much time. You’re not going to be upside-down forever.

The 2008 real estate market crash: A case study in underwater mortgages

Let’s look at the real estate market crash in 2008 as a great case study in how underwater mortgages inevitably recover. According to data from the Federal Reserve Bank of St. Louis, the peak median sales price of a home prior to the 2008 real estate crash was $257,400 in Q1 2007. Since mortgage rates were about the same then as they are now, this is a great worst-case scenario.

By Q1 2009, that same median home was worth $208,400 — a 19% drop in equity in just two years. It was intensely alarming to all of us in the industry at the time.

But let’s see what happened to those homes 13 years after purchase, in Q1 2020. Everything changed once the pandemic kicked in, but Q1 2020 was still business as usual, and the median home sales price by that point was $329,000, a nearly 28% increase from 2007, despite the fact that home values had taken a serious bath in between those two points.

In fact, it only took until Q1 2013 for homes that were potentially underwater to be in the clear again — all those zero down homes had regained their equity in just six years, despite a massive recession, the housing market imploding, and everything going wrong.

Time for a table!

Is a zero down mortgage a path to financial ruin?

The reemergence of zero down mortgages, while in a little bit of a different form, is neither surprising nor especially worrisome for the economy or for you, individually. As long as you’re choosing a fixed-rate mortgage with a payment you can afford, the equity you do or do not have in a downturn is generally a non-issue. I say “generally” because there are specific reasons why you might have no option but to sell, but these are rare and affect only a small percentage of the population.

If you’re looking for a house to make a home, and the only way to do that is with a zero down mortgage, then go for it. It’s not the path to financial ruin. In fact, homeownership has been shown over and over again to be a path to financial stability, as long as it’s undertaken thoughtfully and with the intent of remaining in your home long term.

Put another way, would you rather own your home, knowing that you had no equity but the freedom to do what you will and the knowledge that your payment would not change year to year, or would you rather rent — with all the rules and uncertainty that comes with that?

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Costco offers a host of great deals on groceries. Read on for ways that you can save even more. [[{“value”:”

One of the biggest benefits of joining Costco is getting to save money on everyday items like groceries. But are you really maximizing your savings on food-related purchases? If you want to win financially when buying groceries at Costco, make a point to do these things.

1. Buy fresh groceries at the store instead of ordering them for same-day delivery

Costco offers same-day delivery for fresh groceries that’s powered by Instacart. If you’re pressed for time and it’s difficult to get to the store or you hate the crowds that Costco tends to attract, this might seem like a pretty convenient way to stock your fridge.

But there are two issues with ordering same-day grocery delivery. First, there’s a markup on every item you add to your cart.

Secondly, a shopper who’s eager to cram as many grocery runs into their schedule as possible may not take the time to inspect items like produce for quality the way you would. So not only might you pay more for same-day groceries, but you might also end up throwing things out due to quality issues.

Granted, Costco will take back fresh items on the basis of them going bad quickly. But that’s a hassle you’ll have to deal with, as it’ll require a trip to the store and a wait in the customer service line. So you may just want to do your own food shopping in person to avoid that issue and save money.

If you’re inclined to order same-day groceries because you want to avoid crowds, one strategy that might work is hitting up Costco as soon as the store opens. Or, try going later at night, right before it closes.

2. Take advantage of sale prices for non-perishables — but only when that makes sense

Costco discounts grocery items on a rotating basis. Loading up on perishable items often doesn’t make sense, since they have a limited useful life. But loading up on non-perishables could pay off because you get more time to eat them.

However, before you jump at the chance to score crackers, applesauce pouches, or cereal on sale, do two things:

See if your local supermarket also has a sale goingAsk yourself how many servings a week your family is likely to eat

You may find that there’s a better deal to be had at your local grocery store. Or, you may realize that buying two bulk boxes of discounted granola bars doesn’t make sense when it’s just you and one of your children who eat them, and you each only tend to consume one or two bars per week.

3. Split bulk purchases with a partner if you don’t need the entire supply yourself

When you buy in bulk at Costco, you can save money on a per-ounce or per-unit basis. But you’re not necessarily saving money.

The reason? Bulk purchases commonly go to waste to some degree.

Let’s say you buy a 72-slice container of cheddar cheese for $6.99 at Costco, or roughly $0.10 per slice. That may be cheaper than the supermarket price. But if you end up throwing out 36 slices because they’ve gone bad, your price per slice you’ve consumed suddenly rises to $0.20, which isn’t as good a deal.

That’s why it pays to split bulk purchases with a friend, neighbor, or colleague when you’re not confident you’ll be able to finish your entire haul yourself. If you split the cost, you’ll each get a great deal.

At a time when it’s gotten so expensive to put food on the table, you might as well do what you can to reap savings. These moves could help you do just that during your Costco shopping.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has positions in Apple. The Motley Fool has positions in and recommends Apple and Costco Wholesale. The Motley Fool has a disclosure policy.

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