Payment Mortgage

 

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:

Closing costs:

  • Make sure if any closing costs are required. And if any down payment is required or not.
  • Even if it is a no or low down payment, some lenders require a minimum amount that the borrower has to pay regardless  of type of loan.
  • Some other types of lenders may charge for miscellaneous things and the total depends on the list of those things.

There are two types of mortgages:

100% mortgage:

  • In this type of loan, the total amount of purchase price is given as loan.
  • Only one set of closing costs is involved in this
  • PMI is to be paid

80/20 loan:

  • This is combination of two sets of loans
  • PMI need not be paid
  • But separate closing costs are to be paid
  • It takes longer time to pay the loan

Interest rate differences in loans:

Fixed rate interest:

  • Fixed rate interests are more difficult but an advantage for long term loan
  • Because interest rate is fixed throughout the life of the loan
  • Monthly payments are consistent also

Adjustable rate mortgages

  • These are easier to get and good for short term loans. But for long term loans it is a disadvantage
  • Disadvantage with this is rising interest rates. This can cause trouble for people who take these loans.
  • But one advantage is if interest rate goes down monthly payments go down.

Most of the government programs can help people of low income to get loans. Grants are also available for those who qualify for loans