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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