Let’s face it: your house is one of the largest purchases you’ll ever make. With a price tag that large, it can be tempting to look for ways to keep some of your hard-earned money in your pocket.
While down payment assistance programs can seem appealing, there are some potentially negative aspects of these programs that you should think about before enrolling.
Higher Monthly Payments
Without a down payment, the entire bulk of your mortgage will be divided into your monthly payments. So while you don’t have to worry about a large payment up front, the amount you need to pay each month may jump up by hundreds of dollars. What’s more, down payment assistance programs also come with higher interest rates, which can serve to increase your monthly payments even further.
Lenders Might See You as High Risk
Depending on your situation, your lender may view you as higher risk than another borrower who has put together the capital for a down payment. With “risk-based pricing,” some lenders may charge their borrowers a higher mortgage rate – especially if other factors like a lower credit score are involved. You may even pay higher mortgage fees and mortgage insurance premiums.
Increased Risk for You
Down payments provide immediate equity in your home, allowing for greater flexibility if there are changes in the market or in your personal situation. If you borrow the full amount of your property, there’s an increased chance that you’ll suffer more financial damage if there is a downturn in the market. Without equity, you could end up “upside-down” in your mortgage – a situation no one wants to be in.
Every situation is different, so it’s important that you speak with someone who has the experience and background to help you make the best decisions for your situation.
When you’re ready to start the process of buying a new home, let us know! We have the experience, knowledge, and passion to help you find the right loan, with the right terms to make your dream a reality!