What Is 100 Percent Home Financing?
So you are thinking about buying a home, and you’re exploring your options. Most of the time, lenders want you to have a 10-20% down payment. However, is putting your hard earned money down the best option for you?
A lot of the time, especially for first time homebuyers, saving up enough money for a down payment, closing costs, and moving costs can be one of the most difficult steps in buying a home. It used to be despite having perfect credit and a stable income, a homebuyers dream could quickly be crushed due to a lack of a down payment.
However, a number of different types of sources make 100-percent financing available. They include first-time homebuyer programs (such as RI Housing), a home loan program offered by the Department of Veterans Affairs, and the housing program administered by the U.S. Department of Agriculture.
With the USDA Rural Loan option, you can borrow 100 percent of the appraised value of an eligible home.Unlike conventional loans, USDA mortgages have no down payment requirement, which allows a home buyer to finance a home for 100 percent of its purchase price.
This is great news for home buyers: you don’t need to come up with the down payment! The main requirement for a USDA Rural Development mortgage is that the property must fall within certain geographical areas, outside the city limits of major metropolitan centers.
You can’t do that with a Fannie Mae or Freddie Mac loan.
In recent years, lenders have become more confident in their ability to assess the willingness and capacity of borrowers to repay their mortgages. Using credit scoring and other tools, they judge that it is safe to give less weight to an applicant’s ability to accumulate a down payment.
Seeking a 100-percent home financing loan might seem like the best way to buy a house, especially if you’re a little bit short of cash for a down payment. Here are a few advantages of 100 percent refinancing.
Three Major Advantages
- Investor Returns. 100 percent conventional financing may make sense for you if your desire is to invest as little as possible in the home. If your plans include using the property for income and investment purposes, in theory, the less you invest and the more income you generate, the greater your returns will be. As an investor, 100-percent financing tends to work in your favor, since you can leverage bank financing to create cash flow.
- Save Cash. The biggest benefit of going with a no money down loan is getting to keep your cash in hand. When you do not have to come up with any money for the loan, it allows you to hang onto your assets. Having cash in your account can make things a lot easier overall and allow you flexibility with the loan moving forward. Having some savings will make it easier to meet your obligations with the loan.
- Easy Entrance. If you’re looking for a property to call home for a long period of time, 100-percent financing may appear favorable if you’re short on cash and don’t qualify as a first-time homebuyer. This option might be risky if you’re thinking short-term because if your home value falls and you want to move, but don’t have the capital to pay off the loan, things can get ugly.
Reference/Photo Credit: RIHousing.com, Bankrate.com