What is No Money Down Home Loans

Until recently, no money down mortgage loans were unheard of. In the past, the standard down payment for a home was around twenty percent. With the ever-increasing costs associated with housing today, many prospective homebuyers cannot afford twenty percent of the home’s value. For this reason, lenders have become much more flexible in the type of loans they offer. A no-money down mortgage loan, also known as a zero- down mortgage loan, allows qualified prospective homebuyers to finance one hundred percent of the home’s purchase price. First time homebuyers can take a considerable amount of time to accumulate a down payment. By obtaining a no-money down mortgage loan, they can secure the home before it appreciates in value. As the average amount of personal debt continues to increase, no-money down mortgage loans are becoming more appealing to consumers. The interest paid on a no-money down mortgage loan is also tax deductible.

Private Mortgage Insurance
One of the main disadvantages of a no-money down mortgage loan is the private mortgage insurance that many lenders require. It is not uncommon for lenders to require private mortgage insurance on any loan that does not meet the twenty percent down payment standard. However, if you do decide to purchase private mortgage insurance, it can increase the amount of home loan that you qualify for. By obtaining a private mortgage insurance policy, you are considered less of a risk to lenders. When a homeowner reaches a certain percentage of equity in the home, the lender is required to cancel the private mortgage insurance. Twenty-two percent is that standard rate of equity that must be reached before lenders cancel the policy but some lenders may agree to cancel the private mortgage insurance before it reaches that level.

Piggyback Loan
If you do not qualify for a no-money down mortgage loan without purchasing private mortgage insurance, you may want to ask your lender if they offer piggyback loans. A piggyback loan allows homebuyers to receive two separate loans to cover the cost of the mortgage. The first loan is granted for eighty-percent of the home’s value. The second loan covers the remaining twenty-percent. These are often referred to as 80/20loans for this reason.

By : ABC Loan Guide