Generally speaking, it is recommended that a person has 20% of the home price available for down payment. In addition to this, the individual will require to cover property taxes, insurance, other taxes related to the purchase of the property, move-in costs, and repairs and renovations, all of which can be a tall order, particularly so for a new homeowner who is not using the principal from a current home they own. For those people who do not have these funds available zero down home loans offer an alternative way to purchase a home without the finances typically required to do so.
What Are Zero Down Home Loans for Homeowners?
Some lenders and borrowers have come up with creative ways to get around saving up for a down-payment. The benefit of this is that it extends the amount of home ownership to a wider range of potential individuals. Specific no cash down home loans exist which allows home buyers to cover certain closing costs and fees but not have to contribute to the principal payments when first buying a home.
Historically, lenders have been hesitant to lend under no cash down loans because it adds additional risk to a lender given the heightened risk that a borrower would potentially walk away from a home if the market value on the home decreases, leaving the mortgage lender on the hook to place a lien on the home and then foreclose on the home, potentially selling the home for less than its overall value. However, given the ever-increasing price of homes, lenders are offering these no money down loans as a way of incentivizing home ownership.
The disadvantage of these loans for a borrower is the presence of something known as prime mortgage insurance (PMI). PMI is charged by home lenders until a homeowner has 20% of equity in the home, a process that may take many years if they are not putting down a down-payment when buying. The amount paid for PMI cannot be recovered after the fact and is an insurance paid by the borrower to the lender. However, home ownership is desirable for many individuals and those who might otherwise find themselves unable to buy a home will greatly benefit from a no cash down loan.
Other Alternatives to No Down Payment
There are other options available which may allow a home buyer to not put money down and still obtain the home without incurring PMI. To do so, a home buyer may borrow 20% of the home price from a third-party lender and use this as a down payment on the home. This initial loan generally takes a second lien on the home and will be repaid on default after the first loan is satisfied. Doing so can help to avoid PMI but may result in higher interest rates.Home ownership is desirable but increasingly challenging for new homeowners. Using the presence of zero down home loans can help homeowners who struggle with saving the down payment needed for a home purchase without wrecking their finances. Examine the specifics associated with these zero down loans with your finances and find the right solution for your needs.
How to Finance a Home with Zero Down Home Loans
Individuals who are looking to become Homeowners faced many challenges when buying a home. The most notable challenge for many is building up the funds needed for a down payment. Generally speaking, it is recommended that a person has 20% of the home price available for down payment. In addition to this, the individual will require to cover property taxes, insurance, other taxes related to the purchase of the property, move-in costs, and repairs and renovations, all of which can be a tall order, particularly so for a new homeowner who is not using the principal from a current home they own. For those people who do not have these funds available zero down home loans offer an alternative way to purchase a home without the finances typically required to do so.
