Those who can’t afford a down payment of at least 20 percent, usually pay a Private Mortgage Insurance (PMI) to offer lenders some security if you default on the loan. It also allows borrowers to place less of a down payment, but unfortunately the PMI usually adds at least one half a percent to the mortgage cost.

Loans That Require No Down Payment

Piggyback loans offer financing to borrowers that cannot afford the standard 20% down. They are really two loans, the first loan covers 80% and the second loan helps with the down payment and will usually have a higher interest rate. The payment should be less than a single loan with PMI.

An 80-10-10 loan is where the first loan equals 80 percent, the second loan covers 10 percent and the last 10 percent is covered by your down payment.

• Piggy Back Loans: These loans allow buyers to purchase homes with small down payment and help them avoid private mortgage insurance (PMI). Two loans are approved concurrently, the first mortgage usually consists of 80% of the property value and the second mortgage equals about 10-20% of the value, with the down payment making up the difference. The biggest benefit with this loan type is that overall payments are usually less than those that require PMI.
• Two-step Mortgages: These mortgages are specialized ARM’s which adjust at 5 or seven years. After the adjustment, the rate will remain fixed for the life of the loan. The new rate will not go above 6 percentage points than the initial rate, but the rate can drop as the market changes. Two-step mortgages are similar to fixed rate mortgages but an automatic refinancing built into the product.
• Convertible ARM’s:The loan gives the buyer the option of converting to a fixed rate and alleviates some risk involved with fluctuating interest rates. Converting to the fixed usually requires some kind of fee and the rate will most likely be higher than standard rates.
• Balloon Mortgages: These short term fixed-rate loans begin with low fixed payments and then end with one large sum payment for the remaining principal at the end of 5, 7 or 10 years. It can be a smart choice if the buyer only wants to stay in the home a couple years.
• Convertible Loans: These loans act like a fixed rate during their first 3, 5 or 7 years. They usually have a lower interest rate initially but then turn into a adjustable rate mortgages. If income is expected to increase or if interest rates are going to fall, then it could be a smart choice
• Graduated Payment Mortgages: The mortgages offer small payments at the beginning and then rise gradually and level off approximately 5 years. It’s recommended for buyers who expect income to rise significantly.