During the real estate boom in the early 2000’s home buyers were getting approved for mortgage loans without having to put money down on the loan. It seems like a great idea, right? You get into a brand new home and it costs you absolutely nothing and in some cases you might even get money. Builders were having incredible sales and giving incredible incentives to all new home buyers. Then the housing crisis hit and lenders quickly began to change lending practices.
Even with a strong credit report the no money down option is not the best choice any new home shopper. The reason is that after a few months the monthly payment will increase to where it is suppose to be. Once this happens most people find themselves in a state of regret or buyers remorse. There are some major benefits to putting money down on the purchase of a home.
One of the biggest advantages to having money to put down is that by doing this you will receive a lower interest rate which will significantly reduce the amount of money you owe for the house. In the past lenders would usually require at the very least 20% down to get the loan approved. Most have got rid of the programs that let buyers into a home without having to put money down. I have heard of private lending of a little over 100% to cover the closing cost of the home. One major drawback of a private loan is the private mortgage insurance that is required to get approved can be costly.
Freddie Mac and Fannie Mae are two financial organizations who provide loans specifically to first time home buyers. These loans are typically require a down payment but can be less than the normal 20%. Loans from Freddie or Fannie typically ask for only 3%, on the down side you end up paying more for the home in the long run.
The one thing you should take from this article if you are thinking about purchasing your first or third home is that the more money you have for a down payment the lower the amount you actually be paying in total for the home.
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