New Mortgage Trends for First-time Buyers

Physician's Money Digest, May 2006, Volume 13, Issue 5

Time

Physicians who purchased their firsthome years ago likely did the traditional20% down payment and 30-year fixed-ratemortgage, which has been the standard fordecades. But these days there are severalmore options available to first-time homebuyers, for better or for worse. As housingprices have gone sky-high in recent years,new homeowners are finding it difficult tocome up with the customary 20% downpayment, and are instead opting for nomoney-down mortgages. According to, a whopping 43% of first-time homebuyers purchased their homes with nomoney down in 2005, which is up 28%from just 2 years ago. However, financing100% of your home leads to additionalcosts, including private mortgage insuranceand a 0.5% premium during the first yearof payments. What's worse, homeownerswho use no-money-down mortgages usuallyend up owing more than their home isworth, and when the market cools downthey'll still be left with huge monthly payments.Interest-only loans are anothermortgage trend of which new buyers needto be cautious. With low interest rates,signing a low-percentage, interest-only,adjustable-rate mortgage seems wise, butif rates balloon in the future, you could findyourself paying substantially more on yourmonthly mortgage payment.