Zero-Down Mortgages and the 80/20 Program Overview

By: Mevish Jaffer

A lot like the name sounds, a zero-down mortgage involves a buyer who does not make a down payment and borrows the entire purchase price. Buying your first home is the "American Dream" that many people try to strive for, however if you're someone who is putting off purchasing a home due to lack of sufficient funds for the necessary down payment, then a zero-down mortgage loan might be an option you want to consider in order to get into a home of your own.

Are Zero-Down Mortgages Right for You?

If you're currently renting a residential property, odds are that for the same amount you are spending on rent each month, you could be building equity on a home through appreciation and mortgage principal payments. There are also other advantages, and some disadvantages that may be worth taking into consideration before deciding whether a zero-down mortgage is right for you.

Advantages

• A zero-down mortgage provides you with an opportunity for home ownership. Instead of spending a lot of time saving up for a down payment, first time homebuyers can utilize no money down, or zero-down mortgages in an effort to get into a home a lot sooner.
• With zero-down mortgages, there are no upfront costs. You are able to retain your available cash and invest it elsewhere, such as home improvement projects which serve to increase your property's value.

Disadvantages

• While you might think that a zero-down mortgage loan covers all associated fees and costs, this is not necessarily the case. There are some closing cost related fees that the mortgage will not cover such as settlement fees, real estate appraisal, and property inspection.
• In order to qualify for a zero-down mortgage loan, the additional purchase of private mortgage insurance is mandatory. One way to eliminate this extra cost is to save up for a down payment.

The 80/20 Mortgage Program

Falling under the zero-down mortgage umbrella, the 80/20 mortgage program involves two mortgage loans for 100% of the purchase price, with the first mortgage at 80% of the purchase price and the second at 20%. The 80/20 program also eliminates the added cost of mortgage insurance. Additionally, the second portion of the 80/20 mortgage allows you to either have a fixed second mortgage or use a line of credit.

Choosing Zero-Down Mortgage Lenders

If you have already made the decision to apply for a zero-down mortgage loan, you'll need to start looking for a mortgage broker. You can start your search on the Internet; however there are some potential pitfalls to be aware of if you're going to find a zero-down mortgage lender online. Watch out for high closing costs. It's best to look for a lender who will work your zero-down mortgage to lower your closing costs. While it's common to pay overall higher interest rates for zero-down mortgages, you should be weary of online lenders that are offering even higher interest rates than need be. Think about future options concerning your zero-down mortgage loan. With that in mind, try searching for a lender who will help you to refinance down the line should your financial situation permit.