The down payment is almost necessary when you have to buy something on credit at all times. But that doesn’t seem the case for mortgages — at least not as of late. Considering that a home loan is the biggest debt you could ever have in your life, putting down as much as you could simply lower your loan-to-value (LTV) ratio, and essentially make your loan easier to pay.
However, not everything ideal actually happens in real life. Many American borrowers don’t have the luxury of spending a fortune out of their pockets initially. As the industry has keen senses when it comes to this need, the lenders are quick to offer mortgages with no money down.
While this trend started to become popular late last year and is expected to take off this 2016, it doesn’t mean you have to take advantage of this type of home loan immediately.
One Word: Underwater
Low, or the lack of, down payment is one of the many poor choices homebuyers make that lead to negative equity. Even if you are not late on your repayments or don’t pay anything less than the balance due for the month, zero down might set the stage for your mortgage to go deep underwater.
Although home prices are less likely to drop in hot real estate markets, like Salt Lake City and Denver, it doesn’t guarantee your mortgage in Sandy wouldn’t turn upside down in the future.
More than Better Credit
If you feel you really have no choice but to go from zero down mortgages to have a house, make sure you have an impressive credit score. Unlike in the past when lenders had troubles with borrowers that own underwater mortgages, lending companies would be stricter in terms of credit requirements. You must prove you have the remarkable credit history to show lenders that you can actually pay off the loan faster than the others that put down something.
3% is Better than Nothing
If you can’t give about 10% down payment, putting down at least 3% is better than not paying a penny at the beginning.
Zero down payments might seem you get away from paying anything initially, but you may regret it terribly bad down the road. You must discuss your options with your broker to calculate the risks and make informed decisions.