Guess what’s in vogue again? Mortgage deals that require zero or little down. Before you get excited, better give this idea a deep dive.
“The biggest plus is that you can buy a home sooner, since you don’t need to put money down or you can get in with an extremely low down payment. Not having this obligation also likely means you’ll have cash on hand for other expenses,” says Max Soni, CEO of Delancey Street, a Manhattan company that provides residential, commercial and other loans.
But those perks may come at too high a price. Often, many private lenders say zero-down, but actually, they charge additional fees, or higher interest rates which are added into your monthly payment, points out Soni.
One way you’re certain to pay more: A premium for private mortgage insurance will be added to your monthly payment. Generally, lenders require this type of insurance if you’re not putting at least 20 percent down, says Ogechi Igbokwe, a certified financial planner with OneSavvyDollar.com in Eastport. That’s because you’re considered a higher risk, and PMI protects the lender — not you — if you stop making payments on your loan.
Remember, the higher your down payment, the lower your monthly payment and interest rate will be, and the sooner you’ll accumulate the 20 percent equity you need to stop paying PMI premiums, says Tim Manni, a home expert at NerdWallet.com.