December Article
100% Financing
These days there are some creative methods for avoiding the need to place a large down payment in order to purchase a home. This is fortunate considering that for many families homeownership would be out of reach were it not for these methods. In the past placing a down payment on a home was commonplace. Recently, as housing prices have risen drastically over the past couple of decades it has become harder and harder to save enough money to put forward a meaningful down payment. Luckily, there are now ways to go about getting 100% home financing. What will work best for you depends on your means and goals.You may hear advertisements for 100% home mortgage loans. What this usually ends up being is an offer for an 80/20 home mortgage, also known as a "piggyback mortgage". An 80/20 mortgage is actually two mortgages that you get at the same time to finance 100% of the cost of a property. Typically, both loans are handled by the same lender and closing on both happens at the same time.
In an 80/20 mortgage, the 20% part refers to a second mortgage that acts as a down payment on the primary mortgage. This second mortgage can be an equity line of credit or a traditional second mortgage.
Because both mortgages in an 80/20 situation are secured by your home, you need to be sure that you can afford the payments on both mortgage loans. Where you do end up saving money with an 80/20 loan is that you can avoid paying PMI in these situations. PMI stands for "Private Mortgage Insurance" and it can amount to a hefty monthly payment that can be avoided by placing a large enough down payment, as happens in an 80/20 loan.
It is important to know that even in a 100% financing situation, you will still need to have enough money on hand to cover your closing costs. Most lenders do not allow you to roll the costs involved in closing in to your home mortgage, even in a piggyback loan situation. Because you are closing on two mortgages at the same time, your closing costs for an 80/20 mortgage are generally higher than in a traditional mortgage.Even though a piggyback mortgage will cost you more, it is still an attractive option for families that have adequate income but little savings. By taking advantage of this method of financing 100% of the cost of your home, you can experience the benefits of homeownership and work toward building equity in a home.
FHA Loans
Recent increases in subprime home foreclosures have seen many turning to FHA home loans. The Federal Housing Administration was created in 1934 as an effort to bolster homes sales during the Depression. By financially guaranteeing loans the FHA lifts much of the risk of non-payment and foreclosure from private lenders. It is important to remember that the FHA is not a lender; they just guarantee your loan.Advantages to FHA Loans:
- Bankruptcy is not an automatic disqualification. The bankruptcy must be two years old and you must have good credit since then.
- Less stringent credit requirements. Instead of looking solely at your credit report the Federal Housing Administration looks at what they call the "total scorecard". The total scorecard allows the FHA to better assess and manage the risk of a given loan.
- Lower interest rates. Normal subprime lenders have employed much higher interest rates in order to compensate for the increased risk of the loan. Because FHA loans are guaranteed, there is substantially less risk for the lender and therefore interest rates are lower.
- Down payment is required. While many might see this as a disadvantage, making it harder to afford a home, it is also an opportunity. Because a down payment is required the principle on the loan is less. This means there is less interest charged along the life of the loan. Together these both mean that the loan will be paid off that much quicker.
Senior Loan Officer
Mortgage Express
Office: 503-517-8673 / 360-213-2595
Mobile: 503-849-0403 / 360-772-2755
Fax: 503-296-5466 / 360-397-0920
laurie@lauriehansen.net
http://www.lauriehansen.net/
