100% Financing - Zero Down Loans
Loans that offer 100% financing let borrowers overcome one of the primary obstacles to buying a home— lack of a down payment, allowing more borrowers to qualify for a home. This loan is more popular with first time buyers, but it may also be available to seasoned homeowners, both on new home purchases, and for refinancing a home.
Below are some guidelines for obtaining a 100% Financing loan, given in example. Guidelines vary from lender to lender, and over the past months, most guidelines have become more strict than they have been historically. Therefore, borrowers who do not match the following criteria may have a very difficult time obtaining 100% Financing.
- Credit score of 600 or higher on purchase or refinance transactions
- 50% or less housing debt-to-income ratio
- 3 lines of traditionally rated credit and a 2-year credit history
95% to 100% financing may be obtained on single-family residences, planned unit developments, duplexes (2 units), and condos. Some lenders will allow 6% seller-paid non-recurring closing costs, to further assist the homebuyer.
Here is an example of Zero Down, 100% Financing, compared with a 3% Down loan (97% Financing) on a home with a $200,000 Purchase Price*
|100% LTV**||97% LTV|
|Impounded Taxes (6 mos.)||$0||$1,250|
|Impounded Insurance (2 mos.)||$0||$113|
|Mortgage Insurance (2 mos.)||$0||$336|
|PITI Reserves (2 mos.)||$0||$3714|
|Total Needed To Close||$0||$11,413|
The largest disadvantage is that the borrower has no equity in the home. This can make it difficult on homeowners who find themselves unexpectedly needing to sell the home within the first few years after purchasing, especially if home values in the area begin to drop. The ideal situation is to put a fair amount of money down on a home, but if that's not possible, 100% Financing may be the only immediate means to home ownership, and may still be preferred over renting, especially when the home is located in an area where home values are projected to continue rising, and when the borrower qualifies for a low interest rate.
Understanding The Loan
As with all loans, purchasers should read all the paperwork slowly and carefully, being sure to understand everything in the terms of the loan. If "recurring closing costs", "early payback penalties" and other items appear in the terms, the purchaser needs to fully understand the implications, and if they are not satisfactory, the purchaser should negotiate the terms or obtain quotes from other financial sources.
Finding a 100% Financing Lender
For those interested in obtaining a 100% Financing mortgage, LoanBiz provides a service that matches the potential borrower with appropriate, pre-screened lenders based upon the type of loan sought and the home location, and submits a request for free quotes with no obligation. Licensed loan officers can then review the information and make contact to discuss options. Search for lenders.
* The numbers included here are for illustration purposes only, and may vary based on borrower's payment history, annual interest rate adjustments, etc. All programs, terms and rates are subject to change without notice. Certain restrictions may apply. Contact licensed loan officer for details.