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.