Mortgage Financing Articles Free Mortgage Advice
Pros and cons of a zero-down
mortgage
A
zero-down loan allows a buyer to purchase a home without
committing any money as a down payment. Thus, if you
buy a condo for $400,000, your mortgage will be for $400,000.
However, you will have to pay loan-closing costs - typically,
a few thousand dollars for such things as title insurance
and loan fees. Lenders also will require that you have at least a few
months' worth of reserves - money in the bank or in certain
types of retirement accounts or investments. Here's a look at advantages and disadvantages of interest-only
and zero-down loans.
|
SOME ADVANTAGES:
- Lower monthly costs than almost any principal-and-interest
mortgage. Can be a good choice for people who need or
want to reserve cash.
- Allows borrowers to qualify for bigger mortgages.
The lender approves your loan based on your ability to
afford the monthly payment. So, if you can afford about
$2,000 a month, that might get you a traditional fixed-rate
mortgage of $335,000 at 6 percent, or an interest-only
mortgage of $400,000 at 6 percent.
- Borrowers can pay up to 20 percent of their
principal annually without penalty. That's helpful to
those whose income fluctuates during the year - for example,
those paid on commission.
- Potentially a good choice for buyers who plan
to sell or refinance before the interest-only period
ends and their payments go up steeply.
- Allows a buyer with little savings but sufficient
income and credit to purchase a home. When home prices
are rising, they often outstrip people's ability to save
for a down payment. But by buying a home for no money
down, buyers can start building equity quickly.
|
 Articles Categories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOME DISADVANTAGES:
- Monthly payments will rise dramatically after
the interest-only period ends and will depend on prevailing
interest rates. If you are unable to refinance the loan
and don't plan to sell the home, the resulting payments
might not be affordable.
- Poor choice for borrowers who want to know exactly
what their payments will be after the initial interest-only
period.
- Poor choice for borrowers whose goal is to gain
equity by paying down their principal.
- Generally speaking, if you put down less than
10 percent toward your home purchase, your lender will
require you to pay for private mortgage insurance, or
PMI. PMI can add thousands of dollars to your homeownership
costs over the first few years of your loan.
- Interest rates for zero-down loans are typically
slightly higher because of the increased risk that the
borrower will default.
- If you unexpectedly need to sell your home soon
after you buy, you may have gained little equity in the
home, and will have to pay closing costs and real-estate
sales commissions out of your own pocket.
|
Lendfast Mortgage Referral Service ... Have local lenders compete. |
|
|
|
|
|
|
|
