If you are considering a 100 percent Mortgage Loan, there are quite a few things to consider. It is important to first consider at all sides of this issue. The banks are beginning to tempt us into buying our dream homes with these very attractive loans. For the first time since the housing crash of 2008, many banks are beginning to offer these home loans at near-market rates to conventional borrowers. These are typically people with good credit, but not an abundance of liquid cash flow. The banks offer no-down-payment deals in an attempt to keep the business of finance moving forward in the face of the ever increasing interest rates. But, borrowers beware! You face significant risks, risks about which the banks may not want to warn you!
Similar to the 97 Percent Mortgage Loans that preceded them, the 100 Percent Mortgage Loans carry a wide variety of significant risks. Because you will have zero equity, you could end up “under water” on your house. This basically means that your house payments could end up costing you more than your house is worth if property values decrease even minimally over the coming years. This is something that no one can predict, not even the so-called “economic experts”. If another economic downturn occurs, this may make it extremely difficult to sell your home. But, if you are not planning on moving for 8 to 10 years, this may not be a risk at all. You just have to have a plan.
These 100 percent Mortgage Loans are usually accompanied with only a slight increase in the average mortgage rate, but they also come with a much higher mortgage insurance rate as well. This has to be calculated into your monthly house payment, something that many people do not consider until it is too late. All they see is the “American Dream” of home ownership, and forget about the small, fine print. This leaves little “wiggle room” should something unforeseen happen, like another minor economic slump in the stock markets, property tax increases, or home repairs such as leaky roofs, broken water heaters, or air conditioning repairs. A Plan (and a Backup Plan) is always a good idea.
The Upside of 100 Mortgage Financing
Now that you’ve heard the negative spin, let’s look at why a 100 Percent Mortgage could be GOOD for you. It is important to hear the “good” with the “bad”, and then make a qualified and informed decision. All 100 Mortgage financing can’t be bad, right?
Right! Sometimes they can work in your favor. To begin with, the Housing Market is still at an all-time low. That means, reasonably speaking, the only way for it to go is UP! Makes sense, right? Well, it could also make “cents”! That is, as your property appraisals rise, so does your theoretical bank book. When you eventually sell, you make more money!
So, if you are a young couple, just starting out in life, this may be a good deal for you. You have decades to recoup the property investment. I don’t think any of us truly believe that this housing dip can last forever. And, it certainly seems to have gone down as far as it can already, minus a minor dip her and there. So, if you budget properly, including all the property taxes, mortgage insurance and home repairs, and still save a little extra for a “rainy day”, why not risk it?
When we are first out of school, earning money, getting married, and having children, it can take years to save up that down payment. All those years, you are throwing money away renting, when you could be installing equity into a home of your very own. This is nothing less than “money in the bank”, and an extremely valuable asset to have in your spreadsheet. First-time home buyers may benefit greatly by 100 Mortgage Financing.
If you are a First-Time Home Buyer, it is important to locate a mortgage broker who specializes in securing the types of loans for
people like you. Not all brokers are signed up with these kinds of banks. Several factors, such as credit rating, personal income, employment longevity and rental history help to determine if you qualify for a 100 Percent Mortgage financing. Some banks will like you more than others, some will offer different interest rates than others, and still others might offer different types of mortgage structures. So it is important to throw do your research before you apply.
Although excellent credit is always preferred, there have been times when homeowners have received a loan when they possess a particularly negative blemish on their credit rating. There are generally two ways to secure a 100 percent mortgage when you have a bit of bad credit on your rap sheet.
A Piggy Back Loan, or what banks call a Second Trust Loan, is a special kind of mortgage. It may be structured into two separate amounts, perhaps into an 80/20 loan package where they take the overall amount that you wish to borrow and split the financed amount into two separate loans. The first loan is 80 percent of the total amount that you want to borrow, usually used for the long-term mortgage on the home, and the second loan is 20 Percent of the purchase price, perhaps used for the down payment. The two portions may come from different lenders, will usually have different interest rates and will also have different payoff dates. The securing of a Piggy Back Loan is dependent on the lender and will vary depending on your debt ratios and special reasons for requesting this type of Loan. Be careful to not exhaust all of your available credit. Remember to plan!
Then, of course, there is the 100 Percent Mortgage Loan where you borrow all the money in one big lump, from one bank. This option may be available to you and may be more cost effective. But once again, you have to plan, compare, and shop for the right loan. As a general rule, most banks will let you borrow up to three times your yearly income as a single adult, or two -and-a-half times your combined income as a couple. Use these guidelines for what to expect when going into a bank, hat in hand, looking to buy your dream home. Have realistic expectations. Do not set yourself up for failure, plan ahead for unexpected circumstances, do your research, and be patient. That perfect loan will be out there, at the right time, for the right house! You might be living with this decision for the next 30 years, so you want an end product that you can live with.
So, in the end, it is very worthwhile to spend the extra time looking for the right lender. Some banks are eager to attract your business by using special promotions, giveaways and deals. The bank may offer discounts on other services or offer special interest rates, but some banks go farther than others by offering more concrete benefits that can save you money if the unexpected happens and you need legal advice or assistance. Some lenders agree to help cover the cost of legal fees in certain situations. Others may agree to waive their standard arrangement fees. Just watch out for banks who may want to charge you a hidden, additional fee even before you take out the loan! Read the small print, and, if you are a First Time Home Buyer, you may have more leverage than you think!