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Do I Need a Large Down Payment?

This is probably the biggest misconception. While it used to be true that you needed a large down payment, this is no longer the case. In the mortgage industry, there’s always a great new product just around the corner that benefits the consumer.  The latest of these to surface is the “zero down” mortgage. This mortgage seems to suit two decidedly different types of borrowers:

Let’s take a look at them individually:

  1. If you have great credit, loans have come into existence since January of 2000 that allow you to get a mortgage without having to come up with a down payment. This means that you can borrow 100% of the purchase price of the home, provided that you, the borrower, are contributing a minimum of $500.00 towards the closing costs and escrows. Interest rates on a “zero down” mortgage will run slightly higher than those available to conforming borrowers (those with at least 5% to use for a down payment). The interest rate difference is usually in the neighborhood of .375% higher depending on the amount of the mortgage. (Example, if the going rate was 6.0%, the rate with no down payment would be 6.375%)
  1. For those with less than average credit, loans are available and are usually viewed as a temporary solution to a short term problem. They can be structured as one loan or as a 1st mortgage (80% of the loan amount) and a 2nd mortgage, (for the remaining 20%) to avoid having to pay mortgage insurance. The loans generally offer fixed rates for 2 -3 years at which time you would be able to refinance. The interest rates are higher than other loans, due to the high risk nature, but are usually determined based on the borrower’s credit scores. In general, scores of 580 or higher are required.

With a Zero Down Payment Loan, you can buy a house NOW, reap the benefits of an interest deduction each year at tax time, and begin to accrue equity in the home of your dreams and if applicable begin the process of restoring your credit.