Mortgage without a Down Payment

Can you get a mortgage without a down payment? Certainly. Should you? That’s a big maybe. The down payment plays an important role in mortgaging a home. It helps you build equity in your home, it gives lenders confidence that you're good for your money and it prevents you from paying mortgage insurance premiums. But for some first time home-buyers, scraping together a down payment just isn’t an option. Before you pursue a no down payment mortgage, consider the following:

Veterans Can Get a Mortgage without a Down Payment

The best candidates for a no down payment mortgage are veterans. Through the VA Home Loans program, you can qualify for a home mortgage that doesn’t have a down payment. There are a number of eligibility requirements, but if you are a veteran and are interested in a no down payment mortgage, get in touch with a regional loan center through your VA.

Private Mortgage Insurance

The FHA offers low down payment loans, and some lenders allow you to get a mortgage without a down payment. But in either case, you’ll have to buy private mortgage insurance or PMI. PMI insures that if you default on your loan, the lender isn’t left holding the bag. Borrowers who put less than 20 percent down on a home usually have to pay PMI until they build sufficient equity in their home. This is money that does not go towards your balance, and is thus not seen as an investment. Bottom line: you’ll pay more in the long run if you have to pay PMI premiums.

Higher Interest Rates

Lenders based their mortgage interest rates on the size of your loan and the risk to their own bottom-line. Posting a large down payment represents less risk for them, so you’ll get a lower interest rate if you make a higher down payment. On the other side of the equation, if you’re putting no money down, you’ll pay a higher interest rate.

No Cost Financing

When lenders refer to the down payment, they sometimes roll in the closing costs and origination fees into the figure. If you want a mortgage that has absolutely zero up front costs, you can get a no cost home mortgage. These are somewhat deceptive in their names, however, since most of the time, the closing costs and other fees are simply rolled into your mortgage loan. So, you do actually pay for them in the end - and depending on how long it takes to pay off your loan, you’ll actually pay much more.

More Interest Payments

The higher your principle, the more you’ll pay in the end. That’s just simple math. And by forgoing a down payment, all you’re doing is taking out a bigger loan. So, while you’ll be paying less in the first few years, you’ll pay thousands more dollars in the end.

As you explore your options for no down payment or low down payment mortgages, consider the pros and cons against your own priorities. Make sure you read the fine print carefully and run the different scenarios through a mortgage calculator to ensure that you’re getting a good deal.