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You still have to qualify for the home loan just the same as somebody who does have a down payment. The only difference is a higher monthly rate in the term am

You still have to qualify for the home loan just the same as somebody who does have a down payment. The only difference is a higher monthly rate in the term amount since 100% of the principle is remaining. A bank's risk calculations don't change simply because the borrower has fewer liabilities. To assume home loans are simply given away to everybody because the down payment is absent is ignoring how the process actually works.

sokoloff 7y ago
I don’t assume that loans are given away to everybody without qualification and I’m unclear where you got that idea from my text. There are other differences in zero down payment situations. Having (or wanting) to sell the house in a few years makes it more likely the seller will need to bring cash to closing (as the lack of down payment makes it likely that the sales proceeds after commission won’t cover the loan balance). This can “trap” people in their home, desiring to sell to improve their life in some other way but forced to choose between doing that with the 7 year short-sale black mark on their credit report or staying put. This same phenomenon makes a zero down loan more risky to the note holder, making it more likely that the effective interest rate will be higher.
- austincheney 7y ago
  Again, that isn't how the mortgage industry works. The increased risk that you speak of does exist and is an additional charge on the note called Private Mortgage Insurance (PMI). It is a percentage fee the note holder pays to the mortgage company for an insecure transaction, such as low down payment. It is automatic and at set rates and the note holder doesn't get a voice. Either way the mortgage holder is financially secured. Interest rate, on the other hand, is determined by all manners of risk factors, but not so much the down payment. Typically the bank assesses the risk of the applying borrower using things like employment history, financial factors, credit history, and other factors allowed by law. Fortunately, my 0 down situation comes with no PMI and a low interest rate.
  - sokoloff 7y ago
    PMI, though often split out as a separate line item and sometimes paid to a different party, serves to increase the effective interest rate on the loan. That is how the mortgage industry works. > The increased risk that you speak of does exist and is an additional charge on the note called Private Mortgage Insurance (PMI). It is a percentage fee the note holder pays to the mortgage company for an insecure transaction, such as low down payment. It is automatic and at set rates and the note holder doesn't get a voice. Either way the mortgage holder is financially secured. PS: The mortgage "note holder" is the lender, not the borrower. In the quoted paragraph, you should replace the first two uses of "note holder" with "borrower". That "percentage fee" is exactly what makes the effective interest rate higher.

sokoloff 7y ago

I don’t assume that loans are given away to everybody without qualification and I’m unclear where you got that idea from my text. There are other differences in zero down payment situations. Having (or wanting) to sell the house in a few years makes it more likely the seller will need to bring cash to closing (as the lack of down payment makes it likely that the sales proceeds after commission won’t cover the loan balance). This can “trap” people in their home, desiring to sell to improve their life in some other way but forced to choose between doing that with the 7 year short-sale black mark on their credit report or staying put. This same phenomenon makes a zero down loan more risky to the note holder, making it more likely that the effective interest rate will be higher.

austincheney 7y ago
Again, that isn't how the mortgage industry works. The increased risk that you speak of does exist and is an additional charge on the note called Private Mortgage Insurance (PMI). It is a percentage fee the note holder pays to the mortgage company for an insecure transaction, such as low down payment. It is automatic and at set rates and the note holder doesn't get a voice. Either way the mortgage holder is financially secured. Interest rate, on the other hand, is determined by all manners of risk factors, but not so much the down payment. Typically the bank assesses the risk of the applying borrower using things like employment history, financial factors, credit history, and other factors allowed by law. Fortunately, my 0 down situation comes with no PMI and a low interest rate.
- sokoloff 7y ago
  PMI, though often split out as a separate line item and sometimes paid to a different party, serves to increase the effective interest rate on the loan. That is how the mortgage industry works. > The increased risk that you speak of does exist and is an additional charge on the note called Private Mortgage Insurance (PMI). It is a percentage fee the note holder pays to the mortgage company for an insecure transaction, such as low down payment. It is automatic and at set rates and the note holder doesn't get a voice. Either way the mortgage holder is financially secured. PS: The mortgage "note holder" is the lender, not the borrower. In the quoted paragraph, you should replace the first two uses of "note holder" with "borrower". That "percentage fee" is exactly what makes the effective interest rate higher.