No Money Down Mortgage

Mortgage is a loan obtained by a borrower. The lender is secured by granting specific rights to seize and sell the real estate property (foreclose) mentioned in mortgage document upon default on part of the borrower for recovering dues. The borrower may also create such rights on the real estate property that is being acquired by him or her through these loans. In fact, most mortgages fall in this category.

No money down mortgages are those mortgages in which, the real estate property being acquired and mortgaged by the borrower, is financed 100 percent by the lender. Effectively, the lender hardly gets any collateral through the mortgage document. The risk for the lender is much higher in such mortgages during the initial stages, and as time passes, the quantum of loan decreases when compared to the value of the property against the security of which such the mortgage loan was granted.

Such loans are, however, ideal for the first time homebuyers who have not managed to save enough for down payment. These people reckon that by the time they can really save the required down payment, the home that they can afford to buy right now under no money down mortgage would be become more expensive, and possibly out of their reach because real estate properties appreciate in value.

No money down mortgages became popular during low interest rates regime that was there a few years ago. These loans became an opportunity for lenders to tap a market that was always there but was not able to participate in housing boom. In that period, there was heavy competition amongst lenders to get a client, and therefore, such products were designed to suit a section of clients.

Lenders, however, charge higher interest on loans given under no money down mortgages. This leads to higher installment for the borrower. In addition to this, the lenders insist on some amounts towards insurances. Even with these additional charges, no money down mortgages may still be to a borrower's advantage when the real estate prices are northbound and the value of property at future date can more than compensate the costs being incurred from now.

In the United States, the borrower has to pay a nominal amount (3 %) of the home cost, under Fannie Mae, and Freddie Mac home loans. Lenders offering such loans are insured by these government agencies against any possible risks of delinquency on these loans. Even the three percent that the borrower needs to bring can be in form of gifts and loans from friends and relatives. However, a 100 percent no money down mortgage product is available to veterans in the United States. In the UK, the no money down mortgage is referred to as 100 percent mortgage. In Canada, no money down mortgage loans are available to people. However, there are certain criteria for being eligible for such loans. These include a good credit score of the borrower, no delays in payment of any dues, and some evidence showing the borrower to be consistently employed during the preceding two years.

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