Zero Down Payment Mortgage Loans
The days of most homeowners putting ten percent down on a 30-year mortgage are long gone. One new option is zero down payment mortgage loans.
There are some excellent principles to remember when looking for a loan. First, the more money you can put down on a home, the lower your interest rate and the better deal you will get. Secondly, never settle for the first offer you get; always shop around and compare different offers. Those principles considered, there is a form of loan that may contradict them but still has its purpose: the zero down payment mortgage loan.
Zero-down payment mortgage loans are just as they sound; they allow you to mortgage your home with a lender without having to put any money down on loan itself. What you should know about this, first of all, is that it violates the above principles and that this form of loan should be sought as a last resort. By restricting yourself to a zero down payment mortgage loan, you are restricting the offers you can get from lenders since, at that point, most lenders will offer you the same deal. Also, putting no money down will lead to much higher interest rates than you would be paying.
That being said, zero down payment mortgage loans still serve their purpose. These loans, because they require no down payment, are suitable for those who have difficulty coming up with the cash savings required for a down payment on a home purchase. This loan can be helpful when the market is at a low and starting to rise since the home’s value will rise after the loan has been taken out. The loan can be used in these cases because if the person receiving the loan waits, the market prices of homes could rise considerably over that time. But remember, whenever you use a no-down mortgage loan, the bank owns complete home equity, leaving you no leverage for receiving loans against your equity. You will only earn equity as you pay off the home and as the value of the home rises.
At first glance, zero down payment loans sound like a great deal. In truth, they should be used as a last resort, given that you will pay significantly more in interest over the loan length. At the end of the day, however, owning a home is better than not owning one, so these loans certainly have their place in the market.