The Zero Down mortgage program pairs a standard FHA first mortgage for up to 96.5 percent of the total purchase price plus second mortgage options for your down payment and/or closing costs. The second mortgage provides down payment assistance of three and a half or five percent of the purchase price as a repayable lien.
The same factors go into determining your interest rate for the Zero Down mortgage program as other loan types. The larger your down payment, the less of the total purchase price you’ll need to borrow. The less you borrow, the lower your LTV or loan-to-value ratio. The more you borrow, the higher your LTV, which can mean a higher interest rate.
There are considerations besides the interest rate when buying a home too. While the advantages of a larger down payment can include better mortgage terms, there’s a potential downside. When you weigh the costs of buying versus renting, buying now may be financially advantageous instead of waiting until you’ve saved more for an up-front payment. You also have the opportunity to start building equity in your home right away.
With each mortgage payment, you’re one step closer to owning your home. One of the main benefits of owning more equity in your home is that when you sell, your equity is given back to you in cash. The lender takes the remaining loan amount, and you take the rest, giving you more money back if you sell your home at a higher price than you paid.
Discussing all the costs and benefits of a loan program with your loan officer is always a good idea before deciding if it’s the right choice for you.