It's Lauren here with Two Minute Tuesday, the show where we talk about finances in about two minutes, if you're in the market to get a home, maybe you've seen offers for no money down mortgages. You mean I can get a home without putting any money down? What's the deal with that? Let's start the clock. A no money down mortgage is a loan that finances one hundred percent of the purchase price of the home, so there's no down payment, but there's got to be a catch, right? Of course, here's the pros and cons of a no money down mortgage. So the biggest advantage is the less money you put down on a mortgage, the more money you have in your pocket. This can give you more cash on hand for expenses and renovations on your new home.
And without having to save up for a down payment, you may be able to buy your home sooner rather than later. But the biggest con to a no money down mortgage is you'll be paying more in the long run. Without having any of your own money in the house lenders will perceive you as a higher risk and you'll likely pay a higher interest rate on your loan. No money down mortgages typically have higher fees, as well as requiring private mortgage insurance or PMI, which can add hundreds to your monthly bill. With a no money down mortgage you also face the risk of being underwater and not the fun kind where you're snorkeling. When your mortgage is underwater, it means you owe more than the house is worth. If you buy your home with no money down, you have no equity in your house. So any drop in the market can cause your house to be worth less than what you owe on it.
This can lock you in your house because you can't afford to sell it. Having real money or equity in your home matters because it gives you the flexibility to get a home equity loan to pay for major expenses, often at a lower interest rate than a credit card. Again, the biggest issue with a no money down mortgage is you'll be paying more every month because the more you finance, the bigger your monthly payments. You'll also be paying more in the long run because every dollar that you don't put on a down payment is a dollar you have to pay in interest later.
The bottom line is no money down mortgages are best if you don't have the cash saved up to get your home today, just make sure you'll be able to make those monthly payments first. However, if you have any money saved after your emergency fund, you'll be better off putting something down on your house to lower your payments and fees. So that's the deal with no money down mortgages. If you're in the market to buy a new home, I'll add a link to Coastal's mortgage section below, we have professional mortgage loan officers who can guide you through every step of the process. Be sure to subscribe to our channel and hit that notification bell the stay in the loop. Thanks for watching. And remember, the best part of banking better is living better..