Mortgages are mostly taken for buying new property. That might be a house, or a land or a plot. Some of the lending institutions ask for a down payment amount.
Down payment is the amount which the buyer pays at the time of finalizing a transaction. It is a part of the total amount and is usually given in cash. Its main purpose is to ensure recovery of the balance amount in case the borrower defaults.
By taking the down payment the lender ensured that the borrower is less likely to default. The down payment includes loan approval.
No down payment means, there is no necessity for paying amount in advance during a transaction. Usually no or low down payments require little or no cash from the buyer.
In today’s market a no down payment mortgage is generally given for veterans and eligible for Quicker loans and VA loans.
Low down payment option can be used for those who cannot afford to pay large amount of money as down payment.
In low down payment mortgage, two types are most popular. They are the FHA loans and the SMART PMI loans. FHA loan requires only 3.5% down payment. But in SMART PMI, the monthly mortgage insurance can be bought ensuring a lower payment throughout the life of the loan.
Generally first time home buyers come into this category of low down payments. It may because of not saving enough money for a down payment or for diverting the saved money for buying other house hold items like furniture.
Depending on the type of loan payment, there can be disadvantage in low down payment mortgage. That is paying private mortgage insurance or PMI. For down payments less than 20% of the house value, a person has to pay private mortgage insurance. Lowering the monthly PMI is the best option available. This can be achieved by If borrower’s reach a predetermined level of equity in home loan which is 22% they can ask the lender to cancel the PMI.
To compare no or low down payment the following options can be chosen:
Most of the government programs can help people of low income to get loans. Grants are also available for those who qualify for loans