Zero Down Mortgage: Beneficial or Not?

2007-03-08 10:33:40

( Financial )



Zero Down loans permits potential buyers to purchase property without a down payment. The full value of the property you purchase will be the value of your mortgage. Besides other fees like home insurance, you can own a house or a condominium without shelling out a big chunk of your savings in one big swoop.

The Zero Down homes has several advantages. It is a good choice for buyers who need or want to reserve cash. It is also beneficial for those of you who have insufficient money in the bank but have ample monthly income and credit to own a home.

This is also favorable for you whose monthly income fluctuates during the year like people whose earnings are purely based on commission. You can pay up to 20 percent of the principal annually without incurring any penalties.

If you are also planning to sell or refinance your home before your interest-only period ends, the zero down mortgage may be a good choice for you.

However, having a zero down mortgage can be risky after the interest-only period ends for your loan. Monthly payments will now be determined by the current interest rates in the market. The resulting amount might be prohibitive for you.

Lenders will also require you to purchase a private mortgage insurance or PMI . This is applicable if the down payment for your home is less than 10 percent. The PMI can significantly increase your homeownership costs in the first few years of your loan.

The interest rates for a zero down loan are also typically slightly higher due to the increased risks that you (the borrower) will default.

You may have gained a little equity after a short time on your home, but if you’re planning to sell or unexpectedly have to sell soon after you have availed of your loan, you will still have to pay closing costs and real-estate commissions from your own pocket.


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