No Deposit Home Loans

(listen to the devil on your shoulder)

The Facts: The no deposit home loans program has been devised for individuals who can't raise the mandatory 10-percent minimum deposit normally required by creditors. The idea behind the deposit is for homeowners not to renege on the agreement because of the cash equity that buyers invested in the home.

On the contrary, this arrangement is imbedded with risks, considering that homeowners can default from a payment and walk away free from the agreement and the lender loses in the process. That is why the selection process implemented to determine qualified buyers involves thorough background and character screening.

The demand for new homes is picking up in some places in the market, but fewer buyers attempt to secure a property because they can't save enough to pay for a 10 to 20-percent deposit. With the not so promising economic fundamentals, home-ownership is becoming just an aspiration for many due to rising prices and the growing costs of living and the high unemployment rate.

Seeing this as an opportunity, creditors are offering a no deposit home loan as an option to aspiring homeowners who need to purchase 100-percent of the property value without necessarily setting up downpayment. But is this the better choice?

How do buyers qualify for a no deposit home loan? This type of loan is not secured with owner's equity, so it is subject to inherent risks. Therefore, creditors require buyers to show proof of a solid saving track record before the agreement is implemented.

This is necessary because borrowers need to shoulder costs on stamp duty, government registration fees and also conveyancing or legal costs associated with the purchase of a new property. Ideally, the no deposit home loan service is open to individuals who come from industries with high income and job security provisions. The purchase scheme is amendable if the benefits of monthly amortization far outweigh the cost of renting a home.

Does a no deposit home loan cost more than the traditional forms of home loans? The answer is yes. Initially the buyer pays for the mortgage insurance and interest while the associated fees are likely to be higher and there may be other restrictions as well.

The lender may require a 2 to 3-percent buffer so that borrowers can deal with future interest increases. Accelerated payment may also be requested especially in the early years to reduce principal debt. Borrowers should manifest willingness in servicing the loan. Furthermore, job security and continuous employment may be required and most likely additional security becomes necessary.

Under prevailing circumstances, a no deposit home loan is the only option for buyers who need to purchase a property without the need of providing a downpayment. But it carries a grave risk to the lender, so in a way you are paying premium interest rate for the privilege that is usually about 2-percent higher than what is being offered in the market.

The prospective homeowner faces risks as well. The more the amount financed the more accrued interest is paid. And over the course of a 30-year mortgage, thousands more will have to be shelled out than with traditional home-ownership agreements. The no deposit home loan should be used only as the last viable alternative.

The Fiction: Listen to the devil on your shoulder, not the angel. Go ahead and take the risk. Foreclosure isn't that bad. You go to church on Sunday, ask forgiveness and then you go to Vegas on Monday without telling your spouse. C'mon, you know you want to go it. Life is a risk, so go out and buy that home you can't afford even after the meltdown and put your whole financial security at risk.