Mortgage Refinance Guide

Coming up with the necessary down payment to purchase your home can be difficult. For many people achieving the dream of homeownership is only possible with a 100% mortgage loan.

Here are the basics you need to know about so called “no money down” or “no down payment” loans. 100% mortgage loans are still common with competitive mortgage rates. This makes it easier for homebuyers with little or no down payment to purchase homes, even with credit problems.

100% Mortgage Loan Basics

Despite the recent credit crisis, 100% mortgage financing is still possible for the average homebuyer. There are two basic options available to the average homeowner for 100% financing.

PMI Loans: Many lenders require Private Mortgage Insurance (PMI) for any homeowner with less than a 20% down payment. Private Mortgage Insurance can be expensive and could add hundreds of dollars to your monthly mortgage payment.

If you’re not familiar with Private Mortgage Insurance this insurance protects the lender from losses if you default on your loan. In the event of foreclosure the insurance pays the lenders expenses; this insurance does nothing to protect you as a homeowner. If you have poor credit there is little you can do to avoid paying PMI. If you have good credit the second option could save you money.

80/20 Mortgage Loans: 80/20 loans are also called “piggyback loans.” Taking out an 80/20 loan allows you to avoid the expense of Private Mortgage Insurance because your primary lender is only financing 80% of your home. You will have a second “piggyback” loan for the remaining 20%. This second loan is typically with a different lender and will carry a higher mortgage rate because this lender is assuming great risk than the primary lender. The downside of an 80/20 loan is that you will have two mortgage payments to make each month. Fall behind on either mortgage and you could lose your home to foreclosure.

100% Mortgage Loan Risks

There are financial risks involved with 100% mortgage loans. Primarily, because you are financing the total value of your home, you will have next to no equity in the property. If home values in your area decline you could find yourself owning more than your home is worth. You can learn more about your mortgage options, including ways to minimize your financial risk and save thousands of dollars in the process by registering for a free mortgage DVD.

If you are considering 100 percent financing to purchase your home because you lack the necessary down payment, 8020 mortgages could help you secure the loan you need. Here are the basics you need to know about 8020 mortgages to help you decide if this type of loan is right for you.

Housing prices are at near record highs across the country in recent years. This can make it difficult to qualify for a mortgage when you don’t have the necessary 20% down payment. 8020 mortgages allow you to purchase your home without paying extra for expensive Private Mortgage Insurance which can add hundreds of dollars to your payment.

What are 8020 Mortgage Loans?

8020 loans are actually made up of two mortgage loans. You will have a traditional mortgage for the first 80 percent of your home’s value and a second loan for the reaming 20 percent. This second mortgage loan can be from a different mortgage lender and will have a slightly higher interest rate than your first mortgage. 8020 mortgage loans typically offer 100 percent financing by combining the two loans; however, you may find loan programs offering 103 percent financing to include closing costs.

How to Find an 8020 Mortgage Loan

The best place to start your search for an 8020 mortgage is with a local mortgage broker. You will need to find someone willing to work for a reasonable origination fee without charging you Yield Spread Premium. Reasonable origination fees should not be more than one percent of your loan amount. If you’re not already familiar with Yield Spread Premium this is simply the markup your mortgage broker adds to your interest rate to get a commission from the lender. Because you’re already paying an origination fee for the broker’s services, this commission is completely unnecessary.

If you’ve decided to work with a mortgage broker for your 8020 mortgage you can avoid paying Yield Spread Premium by being upfront with your intentions for the loan. Tell potential mortgage brokers that you understand how Yield Spread Premium works and will not accept any mortgage that includes this markup. You can learn more about your 8020 mortgage loan options, including expensive mistakes to avoid with a free mortgage refinancing toolkit.

Mortgage foreclosures are on the rise and lenders are tightening up their standards for approving loans. If you’re in the market to refinance your mortgage there are several problems you’ll want to avoid. You may have seen in the news that lenders are taking a beating because of the collapse of the bad credit or “sub-prime” industry. This has affected not only homeowners with poor credit ratings but those refinancing their loans with good credit.

Mortgage lenders are tightening their standers and requiring homeowners to provide more documentation and accept less flexible terms on their loans. If you are considering 100% percent financing you could find the proposition difficult if you have anything less than stellar credit. Also, if you considering low or no-doc mortgage loans it could be difficult finding a lender to approve your loan; stagnant property values are increasing the risks significantly for lenders with these types of loans.

Other types of 100% financing have also been affected by market conditions. If you are considering an 80/20 or “piggyback” loan to refinance your home Standard & Poor is reporting that these loans are now over 40% more likely to end in foreclosure than if you refinance with a conventional loan. It will be more difficult in the future to refinance with loan-to-value ratios greater than 80%.

A less than favorable economic outlook in the United States means that it will become more difficult for homeowners seeking credit in the future. Mortgage lenders are nursing their wounds and avoiding homeowners they deem too risky for lending. This doesn’t mean homeowners with good credit and a steady income will have problems refinancing; there are incredibly good deals to be found for borrowers that meet this criteria. Mortgage rates are expected to remain stable over the coming years as the industry recovers. Declining home values are allowing buyers to take advantage of the situation with some incredible bargains.