Low or no down payment mortgage in Houston TX: should you consider?

Have you been priced out of the Houston housing market due to skyrocketing home prices? Is arranging a large down payment your biggest hurdle to home ownership?  

If your answer to both these questions is yes, you are probably looking for a mortgage which requires no or low down payment. Most prospective home buyers who don’t have hard cash to spare for a down payment believe that their only option is to find mortgage programs which won’t need them to bring any money to closing.

While it’s definitely an easy way out, an important thing to consider is if these programs actually are in line with your home buying goals. In most cases, you will pay a heavy price for making a low down payment. You will end up paying a lot more over the life of the loan than what you would have paid, had your down payment been over 15-20%.

Here at Shop Owner Finance, we give a large down payment more importance than a person’s credit situation or job history. The reason is that a large down payment works as a financial security for the buyer as well the investor who buys the home on the buyer’s behalf in our program.

Going for a low or no down payment mortgage program may not be a wise financial move. Here are some cons of a low down payment:

• Most mortgage programs which offer a no or low down payment home loan charge a higher interest rate or add extra fees on to the initial amount. You will end up paying thousands of dollars extra over the life of the loan. You will also not get the best mortgage terms due to a high ‘Loan-to-Value (LTV)’ ratio.  
• The most popular program that enables you to buy a home with as little as 3.5 percent down is Federal Housing Administration (FHA) loan. While it sounds like a great option (and it definitely is in some cases), you will be charged private mortgage insurance (PMI). It will be on top of your monthly mortgage payments and can add up to thousands of dollars over the life of the loan. You don’t pay any mortgage insurance if your down payment is 20 percent or higher. Putting 15 percent down is better than a 5 percent or less down payment because the size of your down payment can affect how much mortgage insurance you have to pay, how long you have to pay it, and the size of PMI premiums.
• You will start out with a higher loan balance. A higher loan balance will make you vulnerable in case property prices decline in your market in the future. Since there will be little or no equity in your home, you will find it difficult to refinance or resell your home.
• The total amount of interest that you will pay over the life of the loan will be a lot higher if you put little or no money down.
• Saving for a large down payment is not easy, but this will help you develop financial discipline. You will stop squandering money and save it for down payment. Since real estate is considered one of the best investments, your savings will benefit you in the long run as your home builds equity and property prices appreciate in your market. In a recent article, we discussed how to save for a large down payment.
• If your down payment is low, you may end up with unmanageable monthly payments. This will put a strain on your budget due to a higher monthly instalment amount.

As you can see, going for a low or no down payment mortgage program in Houston may not always be the best financial move. You should strive to put as much money as possible down.

If you have arranged for a large down payment, get started on your home buying journey by exploring the Houston home listings below. Fill out the form on the property listing page. We will help you buy your dream home even if you can’t qualify for a mortgage due to credit challenges.