But there are some lenders who offer
home mortgage with little or no down
payment. No down payment home mortgage
is helpful to buyers who prefer not
to make down payments. They are saved
from the burden of saving a large
amount for down payment.
But if down payment is not paid,
interest rates may be high. The reason
is that lenders see more mortgage
defaulting among borrowers who pay
no or less down payment. High interest
rate is a cost that a home buyer has
to incur for not paying down payment.
Down Payment and PMI
If you do not pay down payment, then
you have to buy private mortgage insurance
(PMI). If the down payment is less
than 20% of the home mortgage, PMI
becomes mandatory. PMI protects the
lender form home mortgage defaulting
by the home buyer. PMI amount is dependent
on the sale price of the home and
the down payment a buyer makes. Lower
the down payment higher is PMI
But later if you have acquired 20%
equity on your home through mortgage
payments you can cancel the PMI. This
is because once your mortgage reaches
20% equity on home, lenders see low
risk of you defaulting your home mortgage.
Regular mortgage payments help you
to cancel PMI once you reach 20% equity
on your home.
Down Payment and Total Cost
If you pay no down payment, then your
home mortgage comes to you with an
extra cost that includes higher interest
rates and PMI. To avoid these extra
costs sufficient down payment helps.
It is in your interest to make good
down payment in order to save on those
extra costs. Moreover your repayment
process will also be easier.
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