How To Procure Mortgage Loans Without Down Payment

If you have a good credit score and are able to make the minimum down payment required, then you can easily procure mortgage loans. The down payment is about 20-25% of the cost price of the home. The more of the down payment you make, the lower rate of interest you will have to pay. However, there are legal ways to procure mortgage loans without having the make the essential down payment. Homeowners can take out a piggyback loan or purchase private mortgage insurance. These work as good alternatives to the down payment.

Piggy Back Loan

This is a second mortgage availed by homeowners as a way of avoiding down payment. The borrower first gets a primary mortgage and at the same time also gets a second mortgage. These mortgage loans taken out in such a way that the total amount of the primary and second mortgages add up to the total value of the loan that the borrower had intended to avail.  This will, therefore, save on the down payment that the homeowner would otherwise have had to make. The downside of this kind of loan is that the borrower ends up paying a higher rate of interest on the second mortgage but it is tax deductible. The amount of the primary mortgage is 80% of the total value of the loan and the balance 20% makes up the second mortgage. Usually the borrower prefers to take out the two mortgages from the same lender.

Private Mortgage Insurance

Private Mortgage Insurance (PMI) refers to both Borrower paid Mortgage and Lender Paid Mortgage Insurance. They are taken out to protect the lenders from possible defaults. The amount paid for the Private Mortgage Insurance is added to the mortgage loans, thereby increasing the monthly payments. The insurance is valid only for the period till half the mortgage payment has been made. After that, it is cancelled and the monthly installments are decreased. The insurance paid is tax deductible too. Taking private mortgage insurance is an attractive option for people who are unable to make the down payment.

Piggyback loans are more popular that the private mortgage insurance loans, because of the latter being taken out for the lender rather than for the borrower. These mortgage loans, though availed, are taken out only in an extreme case, where the borrower is unable to put down a down payment. The interest rates of these mortgage loans are high and they cater more to the lender than the borrower.