WASHINGTON — Mortgage down payments as low as 3 percent — and even 100 percent loans — are returning. That may be good news for buyers who haven’t accumulated a lot of savings.
But there are trade-offs: Mortgage payments will be higher because more money is being borrowed and because private mortgage insurance is required for down payments less than 20 percent.
With that in mind, buyers may want to consider renting for a longer time and saving more for a larger down payment to make sure they can truly afford a home.
If after careful consideration, buyers settle on a low down payment, it’s best to go in with eyes wide open. It’s important to know the details of the loan program and their possible ramifications on finances. The interest rate on a loan with 5 percent down will typically be slightly higher (one-eighth to one-quarter of a percent) than one with 10 or 20 percent down because the loan-to-value ratio is higher.
Before the housing bubble burst, many lenders offered borrowers 100 percent financing. Some lenders even allowed buyers to finance 105 percent of the home value.
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