Home > In the News > Distinctive Homes, Ask the Mortgage Expert: August 2006

Ask the Mortgage Expert

Recently Distinctive Homes asked Mortgage Expert Steve Hines the following question:

Is there really such a thing as a 100% mortgage loan, and if so, how does that work and hard is it to qualify?  Is it a smart choice for first time home buyers?

Up until just a few short years ago, 5% was the absolute minimum down payment required to purchase a new home, and even with putting 5% down, a borrower had to be stellar! Well, things sure have changed. There are many mortgage loan options currently available that allow a potential homeowner to borrow the entire purchase price, and sometimes even include closing costs in the loan, effectively allowing for up to 103% financing. Credit scores for these purchasers must be relatively good, but there are even select 100% programs for borrowers with sub par credit. The fact of the matter is that the dream of home ownership is now open to more Americans than ever due to these financing options.

However, proceed with caution when financing 100%. First of all, if you had to sell your home sometime in the near future and pay a realtor’s commission, you could easily be “underwater” in your house. Also, a typical 100% loan contains an 80% first mortgage and a 20% second mortgage will be a floating rate, causing fluctuating (sometimes up!) payments. Finally, overall you will pay a higher rate for 100% financing due to the increased risk the lender is assuming.

> contact Steve Hines