A 100 Percent Mortgage Can Be Your Ticket To A New Home. Useful Points to Know

Posted on July 31, 2009
Filed Under Mortgage | Leave a Comment

Have you ever seen the get rich quick “guru” on TV late at night talking regarding buying homes with no down payment? Ever wonder if it in truth can be done? For the first time buyer or anyone wanting to purchase a home to live in with decent credit it’s the effortless thing to do. Nearly all of mortgage lenders are able to offer a 100 percent mortgage. The truth is that the usual qualifier is a credit score of 620 or above. Although with the mortgage market becoming more competitive some lenders are accepting a lower credit score for the 100 percent mortgage. There are two essential types of 100 percent mortgages. The average mortgage and the 80/20 mortgages.

The initial thing that you need to have knowledge of and considered to be one of the most fundamental for any individual who wishes to deal with this specific issue is that a standard 100 percent mortgage is simply one bank giving you a mortgage for 100 percent of the purchase value of a property. The down fall is you will have to have private mortgage insurance ( PMI ) until you have 20 percent equity in the house. If you only make usual payments and don’t do anything to increase the value of the home you may be looking at twelve years before you have 20 percent equity. PMI is not tax deductible and can simply enlarge your payment by forty to sixty dollars a month.

With the 80/20 loan a lender will give you a first mortgage for 80 percent of the purchase value of a property and a 20 percent second mortgage. The interest rate of the second loan is usually higher and is for a much shorter term. Ten years is average for the second mortgage. It should be also mentioned that despite the higher interest rate and the shorter term of the second mortgage the full payment of both loans will be nearly the same or less than the standard 100 percent mortgage since there is no PMI with the 80/20 loan. The 80/20 loan is far more beneficial since all of the interest paid on both loans is tax deductible, each month you pay more towards the principal balance of the loans and after the second mortgage is paid off your whole monthly payment is a lot less.

Of course everybody has an another situation. If you are only looking to stay in the home for a couple years this probably is not proper the loan for you. It’s not likely you will build enough equity in just a couple of years to be able to afford to sell the home without having to bring cash to the closing. Certainly you should always talk to your mortgage specialist before making any decisions.

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