Tuesday, January 15, 2008

How to Understand 100 Percent Mortgage Financing

Introduction

Finding the money for a down payment on a home is difficult to do, especially when the price of homes keeps increasing. To overcome the challenges of saving 5 percent to 20 percent of a home's value, you can utilize 100 percent financing options to get into the home of your dreams.

Instructions

Difficulty: Moderately Easy

Steps

1

Step One

Know that 100 percent financing is simply a loan product that does not require a down payment.
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Step Two

Learn about the 80/20 loan. One type of 100 percent financing loan is the 80/20 loan. With this loan product you take out two different mortgages to cover the cost of buying your home. The 80 portion of the 80/20 loan covers the first 80 percent of the home's value. This loan is considered your first mortgage and it is amortized at a regular mortgage interest that will depend on your FICO score. The 20 portion of your 80/20 loan will cover the remaining 20 percent of the home's value and it will be considered your second mortgage. The second mortgage will be amortized at a higher interest rate than your first mortgage. The advantages of the 80/20 loan are that you don't have to have a down payment and you don't have to pay private mortgage interest.
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Step Three

Learn about the 100 percent loan plus PMI. The second type of 100 percent financing is to take out a 100 percent loan plus PMI. Again you don't have to have a down payment, however, in this case you do have to pay for private mortgage insurance, also known as PMI.
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Step Four

Learn about the 100 percent loan plus lender paid PMI. The 100 percent loan plus lender paid PMI is perhaps the most ideal 100 percent financing option that is available. In this scenario you don't have to have a down payment and you don't have to pay for private mortgage insurance. The drawback of this loan product is that it is more difficult to qualify for and it may have higher closing points associated with it.
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Step Five

Decide which 100 percent financing option is best for you. To determine which loan product to apply for you really need to compare the overall cost of the loan as well as which option you qualify for. To do this you can ask your lender to run a mortgage quote based on your FICO score and your employment status.

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