How to buy a house with no money down! 100% Financing is a Great Deal

If you remember the rolling 1980's when it seemed everybody was trying to sell something that had 'no risk', your first impression of anything that says "100%" financing will be like mine. "Where's the catch?" Now that these plans are being applied to something as large and as basic as a home purchase or refinance, the questions can become overwhelming. "Why would somebody finance 100% of the value of a home? What is this really going to cost me? Is this too good to be true?"

Let me go into some detail about these loans and answer these questions. First, nothing about the 100% loan is free of costs. In order to close your loan, there may be costs you have to pay such as escrow or attorney fees, appraisal costs, loan documents and underwriting, and other costs. Even if somebody pays these costs for you, then there is one very large cost you will be paying; each month you will be making a mortgage payment to a lender who owns your loan.

Now we can analyze the real costs of your 100% loan and begin to make an educated decision whether such a loan is for you. You just bought a home with this loan and now the payments begin. Maybe for the first time you realize the payments are definitely going to be higher than if you put some money down. How much more depends of many factors -- your credit and your income for example. In general you may pay as much as 2% higher in rate for such a program. That means every month until you sell or refinance your home payment will be 2% higher for the loan. This two percent factor is by and large the true cost of doing one of these loans.
Conversely the two percent factor is also the reason lenders want to make these loans. Lenders live off of interest, the interest people like yourself pay. The higher the interest received by the lender, the more the lender can claim for profit.
In order to get this extra interest on these type loans the lender is willing to take a greater risk. In fact they are making a deal with you. "We will lender you 100% of the purchase price of your home, but you will pay me extra interest every month."

Should you take the 100% loan? This is really the question, "Is it too good to be true?" The answer depends on your prospective. 100% loans help you buy property without any down payment. You may still, however, still need to pay closing costs. If you are renting and cannot come up with a large amount of savings to buy then you may be surprised to know that you could be owning your home right now with one of these loans. Yes, the payments may be higher than loans requiring down payments, but you could more easily buy a home with one of these loans than accumulate the savings for the down payment. With rates being very low in general right now you may be surprised to find out how low our rates are -- even for 100% loans.

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