If you are considering purchasing a home but do not have the necessary 20% down payment you can still qualify for financing. Here is what you need to know about financing your home with no money down.

Financing your home without a down payment is possible; however, you will pay more for the financing. You need to be careful when selecting a loan with out a down payment as the lender could require private mortgage insurance. Your goal should be to avoid paying private mortgage insurance as this can add hundreds of dollars to your monthly payment. Here is what you need to know in order to get started.

Private Mortgage Insurance (PMI)

You can find a mortgage that does not require Private Mortgage Insurance with no money down, you just need to do your homework. Private Mortgage Insurance is an insurance policy that protects the mortgage lender from certain losses in the event of foreclosure. You pay the insurance premiums; however, the insurance does nothing for you except raise your monthly payment. There are a variety of loan options that can help you avoid private mortgage insurance.

Piggyback Mortgage Loans

Piggyback mortgages are a second mortgage loan that allows you to finance some or all of the 20% down payment. The most common piggy back mortgage is for 10% of the required down payment; however, there are mortgage lenders that will finance all of your down payment and closing costs. You will pay a higher interest rate on the second mortgage as this lender assumes more risk. This expense will save you money in the long run over private mortgage insurance. The interest you pay on your piggyback mortgage is tax-deductible if the home is your primary or secondary residence. Private mortgage insurance is not tax-deductible. To learn more about your mortgage options and how to avoid common homeowner mistakes, register for a free mortgage guidebook.