No Down Payment Mortgage Loans

People, who are desirous of procuring a home mortgage loan, can do so provided they have a good credit score and are able to part with the minimum necessary down payment. The amount of down payment, that is required to avail a mortgage loan, is usually 20-25% of the purchase price of the home. A greater down payment would mean a more favorable rate of interest on the mortgage. However, there are ways to procure a loan without making the necessary down payment. Homeowners may be able to obtain no down payment mortgage loans in one of the following ways: The borrower can obtain a piggyback loan or purchase private mortgage insurance as an alternative to the necessary down payment.

Procuring a Piggyback Loan
A piggy back loan is a second mortgage that is obtained by a borrower as a means of avoiding down payment. The borrower, who obtains a primary mortgage, simultaneously avails a second mortgage, such that the amount of the primary and the second mortgage add up to the value of the loan that the borrower intended to procure. Borrowers can thus obtain mortgage loans with no down payments. Of course, piggyback financing results in the borrower being forced to pay a higher interest on the second mortgage as compared to the first. The interest on piggy back loans may be tax deductible for most homeowners. The first mortgage is generally for 80 percent of the value of the loan. The second mortgage makes up the remaining 20 percent. Some borrowers may be able to down pay 10 to 15 percent, thus bringing down the amount of the piggy backed second mortgage loan to 5 to 10 percent of the total. Many a times, the primary mortgage lender also provides the piggyback loan.

Private Mortgage Insurance
Private mortgage insurance may refer to Borrower Paid Mortgage Insurance or Lender Paid Mortgage Insurance. We will be limiting our discussion to Borrower Paid Mortgage Insurance since the latter is not very popular amongst mortgage lenders. Private mortgage insurance (PMI), that protects the lender from possible defaults, increases the monthly mortgage payments by the amount of premium. The premium paid for private mortgage insurance may be tax deductible and is canceled once the term of the mortgage is halved. Procuring PMI is an option for people who are unable to afford the minimum down payment that is required on the mortgage loan.

Prior to the sub prime crisis, piggyback loans were highly popular. People preferred those to private mortgage insurance since the latter was more expensive. Today, piggyback loans are not easily available. Moreover, since the latter part of the year 2008, even people who had the ability to part with the minimum down payment are not better off as compared to people who were unable to fund the same. These changes are in accordance with the revised rules adopted by Freddie Mac and Fannie Mae to ensure that financially unsound borrowers do not default on mortgage loans. Today, no down payment mortgage loans are not easy to come by except for veterans who qualify for such loans. People, who are able to qualify for VA (Veterans Affairs) insured loans and FHA (Federal Housing Administration) insured loans, can procure these with very little down payment. For others, it may be advisable to stall buying a home till they are able to come up with a fairly reasonable down payment.