So much fuss goes on when people begin to talk about making a down payment on a home.
Many would suggest that putting the standard 20 percent payment is ideal. Not only will you have low monthly mortgage dues once the loan rolls out, you won’t have to pay a private mortgage insurance, too.
In contrast, some say that putting a low down payment when buying a home is less risky for a number of reasons.
Risks aside, low down-payment mortgages still spark the interest of a lot of home buyers. After all, who doesn’t want a low-cost home buying experience?
In order to determine if it’s risky to apply for mortgages that only requires a low down payment, it’s important to understand the advantages and disadvantage of doing so.
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Low Down Payment: Pros and Cons
When you make a low down payment on a home, it’s quite advantageous for clear reasons.
You don’t have to worry about saving a huge amount of money when buying a home. If you put down a small amount of money on a home, you can be a homeowner sooner than you think.
It also becomes a win-win situation for some who would like to keep an extra cash on hand for emergency purposes.
Other than that, you can put the extra money where it can grow. It can either be toward your retirement fund, savings, investment, and some others.
In contrast, the biggest drawback you can experience when you put a low down payment on a home is that you would end up having a bigger monthly payment.
If you opt for low down-payment mortgages, lenders will see you as a high-risk borrower.
Which is why they will require mortgage insurance and set your mortgage at a higher interest rate.
You might be required to pay a mortgage insurance. It’s designed to protect lenders in case the borrower fails to carry out his mortgage.
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Low Down Payment: Risky or Not?
Identifying both the pros and cons of making a low down payment on a home begs the question about its risks. As a borrower, is it really risky to put a low down payment on a home?
If you look closely, it’s not always you who is at risk. In case something happens to your mortgage, lenders take most of the bite and will end up losing more.
That’s where the Private Mortgage Insurance protects them. As mentioned, the PMI will pay lenders if the borrower stops paying his mortgage.
Other than that, government-backed, low down-payment mortgages are insured by their respective departments.
The VA insures home loans programs under their wing and the same works for the FHA and the USDA.
In the end, it’s up to you
In conclusion, deciding whether you should go for a low down-payment mortgage is entirely up to you. By identifying the pros and cons and pointing out the risks, you’ll have a clearer view of your situation.
Always assess the situation before you make a decision. Keep in mind that when you decide, your needs come first.
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