Do 100% Financing Options Still Exist?? November 9, 2007

Of course they do!  2 years ago maybe all you needed to get 100% financing was a pulse, but just because you don’t have a huge down payment saved up, doesn’t mean you can’t buy a home.  Right now you can get some great deals on houses you maybe couldn’t afford a couple years ago, and I can help you finance them with very little money out of pocket!

Types of 100% (or near 100%) financing available:

• the Maryland CDA (or More House For Less) loan programs, that I’ve talked about here & here
• FHA finance up to 97.75% , almost 100%, but allows for up to 6% seller concession, which I talked about here.
• Traditional 100% financing on one loan with Mortgage Insurance
• 100% financing with one loan, and NO mortgage insurance or Lender Paid Mortgage Insurance

What doesn’t exist anymore: the 80/20 (an 80% first mortgage with a 20% second mortgage to avoid mortgage insurance) is quickly going extinct.  Second mortgage financing is just more and more difficult to swing these days.  Stop and think about it and it makes sense.  A second mortgage is second in line.  So if there is a foreclosure on a house the first lien gets paid off first, and the second mortgage gets whats left over.  If someone has financed 100% of the property value with all the lawyer fees & auction costs, it’s likely that there will not be enough money to pay off the entire second mortgage.  That is a risk that investors are not willing to take, and the money for second mortgages on an 80/20 loan has all buy dried up.  If you can find it, you are going to pay in the rate, which makes other types of 100% financing much better choices.

Who’s absolutely gleeful about the decline of second mortgages?  Why, mortgage insurance companies of course!  The 100% mortgage with mortgage insurance is there for most consumers.  While mortgage insurance was once avoided whenever possible because of a lack of tax deductibility, it now is tax deductible for most borrowers!  If you have a lower credit score you may pay a little bit more, but monthly mortgage insurance is viable option for a lot of borrowers.

For buyers that don’t want to pay monthly mortgage insurance, there are programs that allow for Lender Paid Mortgage Insurance.  You get a slightly higher rate, and then your lender pays a flat upfront fee for your mortgage insurance.  There are also other ways to structure mortgage insurance.  Now that it is becoming more popular again, the MI companies are offering flexible ways to make home ownership possible for buyers.

And last, but not least, there is FHA.  FHA does not have 100% financing, but at 97.75% financing it is pretty close.  Plus, FHA is a little more flexible in how you qualify for a loan.  It was a loan program tailored for first time home buyers and their needs, decades and decades ago, and it still is a useful program today.