I am often asked about 100% financing. It’s okay to ask, but qualifying, whew! Some have minimum scores, some have minimum rules, and lots have income limitations, location limitation, even employment (veteran) or worse.
So what is it that makes 100% financing so attractive to so many, that it’s often our first question?
Well, let’s face it, it’s a lot like rent. I can put a minimum amount of money into this and then I can move in and have a payment just like a rental. This could open up the American Dream of home ownership to so many.
Why, then, is it so hard to get?
Well, as you can expect, the default rates (late payments and eventually foreclosures) are unfortunately higher when you simply don’t put any money into it. This does not excite investors, lenders, etc. The entire risk of the entire transaction would fall back on the lender, as someone could enter the property, never make a payment, and live there “rent free” for quite some time before the lender could respond and foreclose.
So lenders, even USDA, have strict criteria. 3 C’s of credit explained here Simply put, if you don’t have a lot of down payment to cover collateral, the credit and capacity requirements are probably going to be stricter.
What are some of the requirements to get 100% financing on a new home?
VA – you have to be an eligible veteran or a family member of an eligible veteran. This happens to be the BEST option for a mortgage!
USDA RHS – you have to be in a rural area. Check here for an easy to use eligibility guide.
Housing assistance – you have to be low to moderate income usually. Sometimes there is also a credit score limit. This is a forgivable second mortgage for the down payment or even the closing costs sometimes. Here’s a nice article on the subject.
Combination packages with 80% Loan to Value on a 1st mortgage and then a 20% second mortgage. This also has a lot of fine print and may simply be a way to give those with higher credit scores yet another option to get to 100% financing…
It’s worth looking into your next home mortgage loan at 100% financing!