123 Elaine Real Estate

To finance a home loan, borrowers are usually required to put in a percentage of the loan amount as down payment while lenders provide 80 or 90 percent loan. However, keeping in mind the consistently increasing price of homes in California, lenders now allow prospective buyers with an option of no money down home loans.

The usual down payment for a home used to be approximately twenty percent. Many homebuyers found it difficult to arrange for such high amounts, even if they had a good credit score. No money down home loan, or zero down home loan as it is popularly known, allows qualified prospective homebuyers to get finance for the entire loan amount. It is especially beneficial for first time homebuyers as they may require a larger time-span to accumulate such a hefty down payment. Opting for no money down home loan allows them to secure the home before it appreciates in value.

However, the major disadvantage of a ‘no money down mortgage loan’ is that many lenders require private mortgage insurance. This is done to reduce the risk on the part of the lender towards the borrower. Purchasing private mortgage insurance can increase the amount of home loan that the borrower has applied considerably. The lender is required to cancel the private mortgage insurance when a homeowner establishes a certain percentage of equity in the home.

If borrowers do not qualify for a ’no money down home loan’ without getting private mortgage insurance, they can enquire about piggyback loans. A piggyback loan permits a buyer to apply for two separate loans to cover the total value of the loan. The first loan is generally approved for eighty percent of the value of the home and the second loan covers the remaining twenty percent. This is the reason that these loans are also referred to as 80/20 loans.

No money down mortgage loans attracts more customers as the average amount of personal debt is continuously increasing. Borrowers also get tax benefits on the interest paid on a no-money down home loan.