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What Are Low-Down Mortgages?

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  • Written By: Jim B.
  • Edited By: Rachel Catherine Allen
  • Last Modified Date: 22 April 2018
  • Copyright Protected:
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Low-down mortgages are loans used by people to buy homes that require a relatively small down payment compared to the size of the loan. These mortgages are especially beneficial to those people who are buying a house for the first time and do not have the kind of capital to initially pay for a large percentage of the mortgage. In many case, low-down mortgages require borrowers to buy some sort of insurance to help protect the lender from a possible default on the payback of the loan. Since there is a small down payment, borrowers must realize that they must atone for this with larger payments on the loan in the future.

There are very few people who are buying a house for the first time that have the ability to make such a substantial purchase without a little help. Mortgages often provide that help by providing the buyer of the home most of the purchase price. In return, the borrower must usually make a down payment and then repay the remainder of the loan in regular installments that also include interest on the loan. Loans in which the required down payments are small are known as low-down mortgages.

For a loan to qualify as a low-down mortgage, it generally must require no more than five percent of the purchase price be provided by the borrower as a down payment. Considering that many normal loans can require a down payment of 20 percent or more, this is a substantial initial savings to home-buyers with low-down mortgages. Many low-down mortgage programs are offered through the federal government and housing authorities in an effort to encourage home sales.

Since low-down mortgages are often offered to those people without the capital to pay much more than the small percentage of the purchase price required, lenders of these mortgages are undertaking huge risks that their loans will not be prepaid. As a result, most of these lenders generally require a borrower buy mortgage insurance. When insurance is purchased, the lending company is protected should a default occur.

One other way that borrowers utilize low-down mortgages is to use their potentially higher down payment for other purposes. If that is the case, these borrowers must make sure that they have enough capital on hand in the future to meet the demands of the loan. Some borrowers may even take out a second loan to help cover the costs of the down payment, although that means that they will have to be concerned with two monthly payments instead of one.

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