Zero Down Loans-What are They?
Believe it or not it is entirely possible to purchase a home without making a down payment. This can be done through a zero down loan and they are quite popular with first time home buyers or any buyer who may have difficulty coming up with a down payment.
Traditionally, home purchases have required a 20% down payment. Naturally, this kind of down payment can be somewhat difficult for many buyers to accumulate, particularly with the rising costs of homes across the nation. If you have your eye on a $100k home this type of down payment requirement is an easy $20k. Over the years many different types of loans have been developed to help first time home buyers and other buyers realize the dream of home ownership without breaking the bank to do it. These options; however, still typically include a 3-5% down payment. For many homebuyers this can still be quite steep.
What you Should Know
While the obvious advantage to a zero down loan is the ability of a buyer to purchase a home without making a down payment at all, there are several factors regarding this type of loan you should understand up front.
First, any loan that involves financing more than 80% of the home’s purchase price will typically require private mortgage insurance, also known as PMI. This insurance is paid by the buyer, usually as an addition to the monthly mortgage payment. It protects the lender in the event the buyer defaults on the loan. Keep in mind that with a zero down loan, even though you are avoiding the down payment, you will be raising your monthly mortgage cost.
You should also know that a zero down loan does not mean that you can close on your loan with no money at all. You will still typically be responsible for closing costs such as:
- Loan origination fees
- Title insurance
- Attorney fees
- Recording fees
Usually, you can plan for your closing costs to run about 3% or more of the purchase price of your home. So while you won’t need a down payment for that $100k home you will need at least $3,000 for closing costs.
If you’re looking for a zero down mortgage, MortgageLenders.com can quickly help you find a selection of lenders to meet your loan needs.