No Deposit Home Loan

No deposit home loans allow homebuyers to purchase a house without the need to pay any money down. This type of agreement was generated by the rising costs of housing and people's inability to keep up with the prices. Lenders are anxious to keep a high number of customers, but fewer and fewer people are able to save the money for a down payment on a new home. In order to boost sales, the no deposit home loan was created.

Historically, this type of program did not exist, and home buyers saved five to twenty percent of the cost of the home to pay the down payment. This down payment ensured that the buyer was invested in the house, and less likely to default on the agreement. However, due to the rising costs of real estate, and the slackening of the economy, lenders have started offering no deposit home loans. This allows a borrower to receive 100% of the purchase price from a lender, minus the fees and costs of extending the agreement.

This type of contract can offer a viable alternative to potential buyers who cannot manage to save for the down payment, but it is a risky option for both borrowers and lenders. It is important to remember the reason for these no deposit home loans is the rise of housing costs. A person who finances a house at the top of market with a no deposit home loan runs the risk of having negative equity. The temptation for the borrower in this situation is to default on the agreement, which means both the lender and the borrower lose money.

The borrower faces other risks, as well. The more that is financed, the more interest is paid on that amount. Over the cost of a 30-year mortgage, this equals thousands more than the borrower would have paid if they had not gone with a no deposit home loan. Without a necessary down payment, borrowers end up paying a lot more in interest than they would have had to save for the deposit, so it should only be used as a last resort.

Certainly, a borrower's best option is to take the time to save ten to twenty percent of the cost of the house for the down payment. However, if it means missing out on the perfect house or market, then no deposit home loans may make sense. When making the decisions between this type of loan and a more traditional agreement it is important to seek God's wisdom. "Because the foolishness of God is wiser than men; and the weakness of God is stronger than men." (1 Corinthians 1:25)

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