So, you have applied for mortgage pre approval, and the loans manager considered you for pre mortgage loans with low down payment. This feels exciting. Right? Caution! Don’t celebrate yet!
First, take a step back to understand what it really means. Note that home mortgage borrowers regret later, after applying for a loan without a clear understanding of what this means on their finances.
Likewise, you could end up with regrets if you do not take time to understand the downsides and upsides of St George home loan with low to zero down payments.
Therefore, in this post, we feature the pros and cons of mortgage loans with low down payment. In the end, we will look at the different alternatives available to St George borrowers.
The Advantages of mortgage loans with low down payment
- It is a fast way to home ownership
The low down payment mortgage loans provide a faster processing time. This is particularly because you do not need to save money, to pay the down payment.
Therefore, if the idea of applying for home mortgage just hit you, so long as you have a clean credit score, you can apply for the loan.
For conventional loans with a 20% down payment, some borrowers had to wait for years before they could raise the high amount. This delays their home ownership plans.
- You can buy with less money down
The obvious advantage of low down payment mortgages is the fact that you do not need a high amount to qualify for a home loan. This is the reason why these loan types are referred to as low down payment.
- Leaves buyer with more cash on hand for regular expenses
Some homebuyers have had to withdraw all their savings to pay for the down payments. This leaves them with barely any cash for financing even the home maintenance, at least before the next paycheck.
However, the low down payment mortgage leaves you with some cash for daily expenses.
- It is a great alternative allowing you to jump out of rising rents
Start building home equity and stop paying rising rents, by taking advantage of the low down payment mortgages.
The low down payment mortgage lets you own a home without struggling to raise the 20% down payments.
The Cons of Mortgage loans with low down payment
- Strict Qualification Requirements
The mortgage loans with low down payment feature tougher qualification requirements.
This is the case because the mortgage lenders want maximum protection from default on the low downs loans. Therefore, expect tougher debt to income ratio and credit score for the loans with low down payment. This is compared to the home mortgage with a 20% down payment requirement. This means that fewer borrowers are likely to qualify for low down payment home mortgages.
- Tends to be costlier
Compared to a conventional 20% down payment home mortgage, the low down payment mortgages come with a premium pricing.
Some lenders try to recoup the amount by charging a higher fee or a high interest rate. Therefore, in the end the borrower pays more than it would cost taking conventional loan at 20% down payment.
If you are taking low down payment mortgage for building a home, ensure you consider the interest rates and compare what different lenders are charging.
- Low down payment home mortgage, makes it harder to build home equity
Home equity is essentially the difference between the property value and the outstanding mortgage repayment.
Therefore, if you are paying the appraised value of your new property, you are starting at zero home equity. For those who pay 20% down payment, this remains their equity, with less balance remaining to own the property fully.
Therefore, if you are applying for a low down payment home mortgage in St George, be sure to read the pros and cons. Remember that every home mortgage product comes with a set of advantages and there are disadvantages too.
There are different low down payment mortgage loans available in the market. Let us look at some of the low down payment home mortgage options.
- The FHA Loan: backed by the Federal Housing Administration, the loan allows home buyers to own a property with as little as 3.5% as the down payment. The loan is an excellent choice for people with high debt to income ratio, or credit score that is less than perfect.
- The USDA mortgage loan: this is a no down payment home mortgage loan. It is available for properties within the specified rural areas.
- The VA Loans: Available to eligible veterans only, the VA loan is a no down payment mortgage.
Check the eligibility guidelines for the particular low down payment home mortgage you are willing to apply.
At Staples Group Mortgage by Sun American, we provide you access to mortgage loans with low down payment. If you are looking to build, buy or refinance your home, we will be glad to help.