No Money Down Mortgage Loans

By Barney Stinson

The no money down mortgage loans are quickly becoming a feasible option for families seeking homeownership. Several programs are now becoming available that allow for families in different situations to become home owners without having to have a large down payment in order to obtain a mortgage. In the past, people would normally have to accept higher interest rates or other forms of penalties in order to obtain a mortgage without a down payment, sometimes without PMI.

Private Mortgage Insurance (PMI)

Private Mortgage Insurance (PMI) is generally required when less than 20% of the cost of the house is used as down payment. The easiest way to sidestep PMI is by receiving a second loan. The second loan, usually for 20%, is then used as the down payment and so technically 20% is being paid as a down payment and so the requirement for PMI is avoided.

Down Payment As a Gift

Another option for a mortgage with no money down is for the down payment to be gifted to the home buyer, but be wary as this practice does come with its consequences. The government has allowed for home buyers to receive their down payment as a gift; the original intention of this law was so that perspective home buyers could receive money from their parents or other family member in order to afford a new house, but home builders and lending companies have found a way to make use of this loophole to provide another time of mortgage loan. Through the use of a nonprofit organization, home buyers can receive 3% of their home’s value as a down payment for their home. Though studies have shown that homes purchased this way generally carry a price tag 2-3% higher than homes brought without the help of the nonprofit organization and the higher price tag leads to higher monthly payments and is merely a way of getting around laws that are intended to prevent people from purchasing more home than they can afford.

The "103% Loan"

One other type of mortgage that has been popping up, though it can sometimes be included in the other forms of loans is the “103% loan”, which allows for a lender to borrow additional money to cover closing costs. Closing costs are one of the things that keep people out of being able to buy a home, since even if they can manage a no money down mortgage loan, they can’t afford the closing costs.

These types of loans are directed at people who want to get off the rental treadmill and actually purchase a home of their own. People, who are tired of paying for their place of living every month and not actually gaining any ownership of where they live, can make use of these types of loans and help them get their first step into home ownership. The federal government is also providing a tax bonus to these types of home buyers to help cover closing costs.

Pros and Cons of No Money Down Mortgage Loans

Each of the different loan solutions has things to consider before accepting them. The biggest pro of all is the fact that they allow a family to get a home without needing the large down payment that many families cannot manage to do. Any financial adviser though will tell you that you should pay as much upfront as you can, because the more you have to borrow the more interest will accumulate and the more you will pay over the life of the loan. No money down mortgage loans do have additional cons to consider.

80-20 loans come with the problem of that the 20% loan is at a much higher interest rate, but because the 80-20 avoids PMI the overall cost can end up being less since you are not paying for PMI. So it can be a very simple mathematical equation of comparing the interest cost of the 20% loan with what PMI would cost. Another thing is to consider the value of your home, when you put the 20% down you lower the amount you owe to 80% of the home; this allows you to refinance or even sell the home when the price drops, because even though you lose money over all its money that you paid previously. If you still owe 90% of the value of the home, but now only worth 85% of the original value it will cost you money to sell or even to refinance.

Top Lenders

American Equity Mortgage is one of the top companies in the nation for loans and has done a good job of making it easy to understand and learn more about what loans a person is eligible for. Lending Tree is another solid company that has been around for some time and focuses on trying to get a person the best loan they can while ensuring the person can afford it. Bank of America is also a very stable loan company that has an amazing amount of features available that help people obtain and effectively manage their mortgages.