Is a Zero Down Mortgage Worth the Money?

A mortgage that does not require a down payment is a zero down mortgage. Restrictions are tight for this type of mortgage, but there are also low down payment mortgages available for those who don’t quite qualify for the zero down loan.

Who qualifies

Zero down loans are available for two groups of buyers: Those with outstanding credit ratings – 700 or better, and certain categories of VA loans. Beyond that the amount that will be required to be put down will increase in relation to the credit rating and history of the buyer.

Down payment options

First time buyers can obtain an FHA loan, which may have a down payment as low as 3.5% of the loan amount. In addition, FHA loans are guaranteed by the federal government, and carry a lower interest rate.

What to expect

Zero down mortgages come with limitations. Among them are:

Higher monthly payments – Because you are not putting anything down, you are borrowing more. Because you are borrowing more, your monthly payments will be higher.
More difficulty finding a lender – Zero down loans are harder to find than loans that require a down payment, because the risk for the lender is greater.
More difficult to qualify – Because the risk to the lender is greater, zero down loans are not give to just anybody. To qualify for this loan, a borrower will need a credit rating of at least 700 (the exception to this is a borrower using VA benefits).
Fewer options – Due to the increased risk, less money is available to lend. Smaller loan amounts shrink the pool of eligible homes available to the borrower.
Increased risk – Several statistical reviews have revealed that at least half of all foreclosures were on homes that had zero down loans.

Alternatives

Many of these issues can be mitigated by putting money down on the loan. Traditionally, twenty per cent has been the standard amount. Depending on the area, and market fluctuations however, great rates can be found with lower down payments.

Mortgage rates and terms can be shopped for, just like any other commodity. Talking with banks, mortgage companies, and other lending institutions will help you find a mortgage with the lowest down payment (even a zero down mortgage), the best interest rate, and the best terms to enable you to buy the house you want.