The Ever-Popular 0% Down Mortgage
Yes, no money down mortgages are still available in 2019, or at least a quick web search makes it appear that way. I enjoy surfing around and looking at ads for mortgages, so that’s what I did today.
Turns out, “no-down” and “low-down” show up on most web links to 0% down mortgages. No-down, or 0%, is very rare, and low-down, or 3% is common.
With the median price of a home in the U.S. just under $200K, a 3% down payment would be $6000. That means a buyer putting $6000 down would borrow $194K on that median-priced home.
The downside of a 3% down mortgage loan is the resulting large monthly payment, which a buyer might understand in theory, but not in fact. Making those monthly payments could easily become a big burden, or even impossible.
Consequences of No-Down and Low-Down Payments
It still amazes me whenever home buyers get excited about a no-down or a low-down mortgage loan. They are so excited about buying a home, so focused on just becoming a homeowner, the consequences of a big mortgage payment are not top-of-mind.
Those consequences may include not being able to afford family vacations, or classes and camps for the kids. They may also include passing up opportunities for special training and advanced degrees, making it more difficult or impossible to increase family income.
Putting large mortgage payments in perspective is crucial, and it’s not easy for young people to do without help. Real estate agents, mortgage brokers and bankers don’t offer that specific help as their job. They are in the business of making money, not counseling.
Just Do The Math on Monthly Mortgage Payments
Fortunately, there are good mortgage calculators available online. Use one and experiment with 0% and 3% down, to start. Then, check 5%, 10% and 20% to see the difference in monthly payment calculations.
Until a borrower reaches 80% LTV, or 20% down at loan inception, the cost of private mortgage insurance (PMI) will be added to the monthly payment. That’s another good reason to think hard about a no-down or low-down payment on any home.
And finally, every borrower needs to look at the big picture, the entire amount scheduled for repayment over the life of the loan, whether it’s 15, 20 or 30 years. It’s not unusual for the entire balance paid to be three times as much as the price of the home, and even more with very low-down payment mortgage loans.