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4 Reasons Buying a Home With No Money Down Is a Bad Idea – The Motley Fool

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If you’re thinking about buying a house without a down payment…….

Image source: Getty Images

If you’re thinking about buying a house without a down payment, you may want to reconsider.

Key points

  • Some lenders let you buy a home without a down payment.
  • This can mean more costs in the form of higher interest and insurance.
  • It could also make it harder to sell or refinance down the road.

Traditionally, buying a home meant making a 20% down payment. However, a growing number of people opt to put down much less because it can be difficult to save such a large amount — especially in housing markets where the price of properties has soared.

Mortgage lenders have become more willing to offer mortgages without requiring anywhere close to 20% down. And in fact, it’s possible for some borrowers to put no money down at all and still get approved for a home loan.

But if you’re considering this approach, think carefully about these four big reasons why buying a home without a down payment is often a bad idea.

1. Fewer lenders may be willing to give you a loan

If you’re looking for a mortgage that requires no money down, you’ll have a narrower pool of lenders to choose from.

USDA loans and VA loans are often available without a down payment. And some lenders have special programs to allow you to get a conventional loan with no money down. But the majority of lenders do want you to put at least some money at stake.

If you narrow down your list of potential lenders to only those that don’t require a down payment, you won’t have as many choices when shopping around for rate quotes. And this could mean getting stuck with a lender that charges excess fees or offers other unfavorable terms.

2. Your interest rates will be higher

When you don’t make a down payment, you have less skin in the game. Generally, lenders will view you as being a higher risk since only the financial institution making the loan has money at stake. As a result, you’re likely to be offered a loan at a higher interest rate than you would have been offered if you’d made a large down payment.

3. You’ll need to pay for mortgage insurance

In most cases, except for VA loans, you will have to pay for mortgage …….


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