How to Compare No Down Payment Mortgages

Instructions

Difficulty: Easy

Closing Costs

1. Make sure you look carefully at any closing costs that are involved with any type of mortgage, whether a down payment is required or not.
2. Some lenders have a set minimal amount that you will have to pay, regardless of how the loan is structured.
   
3. Other lenders will have a list of things that they will charge for and your total will depend on how many of those things your mortgage will involve.
4. Still others will fall somewhere in between these two extremes.
   
5. Choosing a no down payment mortgage usually means you will want to aim for the minimal closing costs.
   

100% Loans

6. This type of mortgage gives you a loan for the total purchase price of your home.
7. You will only have to pay one set of closing costs with this loan.
   
8. You will only have to qualify for one loan.
9. On the down side, you will have to pay for Private Mortgage Insurance (PMI). PMI is usually equal to a certain percentage of your total loan and is divided up over the terms of the loan. It can be dropped once you reach 20% equity in the home.

80/20 Loans

10. This loan is actually a combination of two loans.
11. You will not have to pay any PMI with this loan.
12. You will have to pay two separate sets of closing costs.
13. You will have to qualify for both loans.
14. It will take you longer to pay off the 20% loan than it would take you to reach 20% equity and get rid of the PMI insurance.

Interest Rate Differences in Loans

15. Fixed rates are more difficult to qualify for, but are a bigger advantage for the long term.
    
    o You are locked into the current interest rate and it will always stay at that rate.
    o Your payments will remain consistent for the entire term of your loan.
    o One disadvantage is that if the interest rates go down, your payments would still remain the same and you would need to refinance in order to achieve the lower rate.
16. Adjustable rate mortgages (ARMs) are easier to get and are often only option for some people.
    
    o ARMs are fine for the short term, but can cause trouble in the long term.
    o The most common use of an ARM is to keep it for 3 years and then refinance into a fixed rate loan when your situation is better.
    o Rising interest rates cause trouble for most people, because when the interest rate goes up, the payment goes up.
    o If interest rates go down, then payments will go down.
    

Finding Lending Programs

17. Government programs can help lower income families to qualify for housing.
18. Grants are available to cover the down payment for those who qualify.
    
19. Low to no interest loans are also available.