A guide to no down payment mortgages.

A guide to no down payment mortgages.

Buying a house is a dream most people have. Unfortunately for many it will always be a dream because they cannot afford the “inevitable” down payment. But is it inevitable? This article will explain how it is possible to buy a house without a down payment. Before we continue I would like to clarify I few points and set out a couple of caveats. This article is no way suggesting that buying a house without a down payment is a good idea. In fact it is not a great idea, it’s a rather bad one. However in some cases it might be impossible for s0me buyers to find the resources to provide a down payment. This article will first explain why banks and finance companies generally require a down payment and what trade off’s you will have to accept if you cannot afford a down payment.

Why do banks ask for a down payment? Banks and finance companies provide finance for houses (among other things) for a profit. No surprises there. The profit comes from the interest borrowers pay on top of the capital of their loan. In some cases clients foreclose their loan (i.e they don’t pay it) this causes finance companies to have to sell the house and often lose money. In order to protect their company from the losses incurred when borrowers don’t honor their contracts companies must assess the risk of borrowers not honoring their payments. This risk is quantified in what is referred to as a credit score. What your credit score is will have an effect on which loans you are granted and at what interest rate. Another way companies protect their investment is by increasing the equity of their loan. When a borrower takes on a home loan the house itself is often used as collateral in case monthly payments are not made. This means you will lose the house if you don’t pay your mortgage. If the borrower pays a good chunk of the house up front the value of the house will be automatically higher than the mortgage on it. This increases the chances of banks of being able to sell a house that has been foreclosed for a profit. If there is not collateral the bank is at risk of losing money. Not something banks enjoy doing.

How do I get out of paying for a mortgage downpayment?

There are a variety of methods. Some finance companies will provide 100% and even 125% loans to the right people with the right credit scores and collateral. Another option is to take on two mortgages. The secondary mortgage will be subsidiary to the main mortgage which covers 80% of the houses price. The 20% pending will be paid with the secondary mortgage. This mortgage will have higher interest but will be paid for quicker. The added benefit is that if your home loan down payment is under 20% of the house’s value then a Private Mortgage Insurance is required. This way you will actually save money on the Private Mortgage Insurance which will no longer be necessary.