Pros And Cons Of No Down Payment Mortgage
Some time ago the average down payment for owning a home on a mortgage for 20 years period was 20 percent. However, now the things have changed. Today, home buyers are required to put down as little as 5 percent. But if you do want to put down any down payment then you can opt for a no down payment mortgage and there are many lenders across the US who are offering this type of mortgage.
In a no down payment mortgage, a home buyer finances the total value of the home with the mortgage. Usually lenders give a no down payment mortgage for properties whose value has risen over a period of time and home owners can create equity for their homes.
For many first time home buyers, a no down payment mortgage could be the only option for buying a home as they may not have saved up sufficient money to put down as down payment or they may not want to use the saved money for down payment.
It makes financial sense for many home buyers not to put down money for down payment as they can use the money to purchase furniture and other necessities for their new homes, or use the money to pay off debts. The other benefit is that the mortgage interest is generally tax deductible and the interest rates are lower than credit cards.
The down side of a no down payment mortgage is the private mortgage insurance or PMI. It is mandatory for home buyers who are putting down less than 20 percent of the home’s value to pay PMI. However, this depends on the mortgage loan program the home buyer opts for.
There are ways and means of avoiding PMI. Some mortgage lenders are ready to give an 80/20 mortgage so that home buyer does not have to pay the PMI. In this case, initially a first mortgage for 80 percent of the home value is give followed by a second mortgage for the balance amount.
Borrowers are not required to pay PMI once they reach a predetermined level of equity in their homes. Usually it is between 20 to 22 percent, and the amount varies depending upon the type of mortgage the home buyer has taken.
The home buyer should weigh all the possible pros and cons before opting for a no down payment mortgage. If the mortgage is suitable, there is no reason why a home buyer cannot go for this type of mortgage.
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