Importance of a down payment - By: Paul Escobedo

Getting into a new home with no money down seems like a great idea and in some cases it can be the best option for you. In recent years, during our real estate boom, it seemed like every financial institution offered a “No Down” loan program; but as the subprime market began to experience more foreclosures, lenders tightened lending criteria and got rid of many of their “No Down” programs.

Today, there are certainly less opportunities available for consumers to land that very attractive “No Down” home loan; however, there are still several programs available that do offer “No Down” options. For the most part, many “No Down” home loan programs are only offered to consumers with a strong credit history. This may not be a bad thing, as there are several benefits to putting money down when you purchase a new home.

A major advantage to putting money down on your new home is that by doing so, you receive a lower interest rate. In the end, you’ll pay less per month and a lot less throughout the repayment period of your loan. Lenders typically require 20% down but there are several programs out there that can get you into a home without a down payment. Some private lenders will give you a loan up to 103% to include covering the closing cost. The problem with a loan like this is that you will be paying for private mortgage insurance.

There are several financial organizations, such as Fannie Mae and Freddie Mac that provide home loans specifically to first time buyers. Though these are not zero down, it is much lower than the 20% down that many institutions require. These types of loans typically ask for 3% down. The problem with loans that offer little to no money down, is that you end up paying more in the long-run.

The more money you put down, the lower interest rate you will receive. If you are looking into getting a home loan, remember to put as much down as possible; so that you have a better chance of getting the loan with the most attractive rate of interest.

About the Author

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