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Is 100% financing a good idea?

S

Steve

Lifer
I'm moving out of home (finally!) and I'd like to avoid renting if at all possible. If I need to rent I can find things decently cheap, that will allow me to save up for a good while, with and without roommates.

Anyway, I'd like to get a condo but I sure don't have the funds for even a 5% down payment. I know of lenders who will do 100% but since I know very little about what I could get myself into, I'd like some advice.
 
I'm not a financial wizard (yet, anyway 😛), but you'll probably have a higher interest rate with no money down.

Get back with me in a few months after I learn something..😛
 
Very few lenders are going to do 0% down and even fewer are going to do it for a person with bad credit or no credit. If you do find a deal for 0% down it's either going to be for property that they can't get rid of any other way or you're going to get raped on the price and wind up spending 20% more than you should have. BAD IDEA.
 
Originally posted by: GagHalfrunt
Very few lenders are going to do 0% down and even fewer are going to do it for a person with bad credit or no credit. If you do find a deal for 0% down it's either going to be for property that they can't get rid of any other way or you're going to get raped on the price and wind up spending 20% more than you should have. BAD IDEA.
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wrong. There are subprime lenders out there that would do 100% easily. These are subprime lenders, and of course you will be getting a worse rate than if you go to a prime lender.

The deal will be structured 80% for first and 20% for second. the interest on the 20% would probably be around 11-12% depending on credit.
Also lenders usually add points for condos, what this means is if you buy a condo, your interest point will be higher than if you buy a typical SFR. usually its around a quarter point to half point add.
 
Originally posted by: sm8000
zombie - is that bad or good?
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Depends on your preferences.

Obviously you will be paying more interest that if you have the downpayment and go the prime route. However an added benefit is you will own your own place, and probably (hopefully) your income will increase in the future, so you can pay down your mortgage faster.

I would talk to a broker regarding your situation, and make sure you can make the monthly payments comfortably. What I mean by comfortable is having a higher standard than what the lender will require (make sure your DTI or debt to income is at a level that you are comfortable with)
 
No money down mortgages are typically split into two loans:

one standard 30 year loan for 80% of the purchase price, and one 100% HELOC.

Let's assume the purchas price of the condo is $100,000. Let's further assume you can get a decent rate on both mortgages (i.e. other than the fact you have no savings for a down payment, your credit is somewhat good).

For a 30-year mortgage, that would be about 6%. For your HELOC, that would be about 8.5%. The payment on your first mortgage would be $480 + taxes + association fees. The payment on your HELOC would be $142. Hence, your total monthly housing-related expenditures would be about $622 + taxes + association fees.

Compare this to what you might pay for rent, keeping in mind that the interest and property taxes you pay on the condo are tax deductible.

A further wrinkle in this is how much you expect the condo to appreciate in value in the time you are there. You will need it to appreciate a minimum of 5 to 10% to just break even on the whole deal. If you don't plan on being there long enough to see that kind of appreciation, you are probably better of renting...

Just some things to consider...
 
Originally posted by: z0mb13
Originally posted by: sm8000
zombie - is that bad or good?
Click to expand...

Depends on your preferences.

Obviously you will be paying more interest that if you have the downpayment and go the prime route. However an added benefit is you will own your own place, and probably (hopefully) your income will increase in the future, so you can pay down your mortgage faster.

I would talk to a broker regarding your situation, and make sure you can make the monthly payments comfortably. What I mean by comfortable is having a higher standard than what the lender will require (make sure your DTI or debt to income is at a level that you are comfortable with)
Click to expand...


Wrong-o. Read the fine print on those BS 0% mortgages. They're all going to have significantly higher interest rates and prepayment penalties. Even of you win the lottery and pay the thing off in 3 years instead of 30 you're going to wind up eating the entire financed amount. If you truly believe that you're going to be able to buy property 0% down the same way you can buy it at 10% down you should pass right over condos and buy the Brooklyn Bridge instead.
 
PMI = bad

Get a 120% loan (two loans) and use the second as the down on the first - viola NO PMI! This could save you 100s/mo in PMI insurance savings, albeit at a higher rate. Refi later into one loan using appreciation to cover difference.

/pro advice
 
a year ago i got a mortgage, actually 2:
1st 80% @5.25%
2nd 20% @ 6.5%
i think rates have gone up about 1% in the last year.
i took me 3 mortgage brokers to find a good deal, don't just take their word for it. get a itemized statement of their costs, i think its called a HUD disclosure.
one wanted me to pay $100 for an application fee, i told him to take a hike, there are a million brokers out there that want your buisness
 
It all depends on how you work the loan package.
I went 100% financing with FHA, no PMI.

PMI = bad

Get a 120% loan (two loans) and use the second as the down on the first - viola NO PMI! This could save you 100s/mo in PMI insurance savings, albeit at a higher rate. Refi later into one loan using appreciation to cover difference.

/pro advice
Click to expand...
That is taking into account that you live in an area that appreciation outpaces interest rates. I've seen way too many people get screwed doing this because they can't afford the loan they are getting to begin with.
 
Originally posted by: GagHalfrunt
Originally posted by: z0mb13
Originally posted by: sm8000
zombie - is that bad or good?
Click to expand...

Depends on your preferences.

Obviously you will be paying more interest that if you have the downpayment and go the prime route. However an added benefit is you will own your own place, and probably (hopefully) your income will increase in the future, so you can pay down your mortgage faster.

I would talk to a broker regarding your situation, and make sure you can make the monthly payments comfortably. What I mean by comfortable is having a higher standard than what the lender will require (make sure your DTI or debt to income is at a level that you are comfortable with)
Click to expand...


Wrong-o. Read the fine print on those BS 0% mortgages. They're all going to have significantly higher interest rates and prepayment penalties. Even of you win the lottery and pay the thing off in 3 years instead of 30 you're going to wind up eating the entire financed amount. If you truly believe that you're going to be able to buy property 0% down the same way you can buy it at 10% down you should pass right over condos and buy the Brooklyn Bridge instead.
Click to expand...

I did mention that he would have to pay higher interest. Prepayment penalties do have a deadline, usually it expires after 3 years.

By the way I know these stuff coz I work at a mortgage lender.
 
Sometimes you can find sellers who will finance 100% at competitive rates too. There is nothing wrong with no money down financing if you can find it and get a rate you can live with. :thumbsup:

 
Originally posted by: SampSon
It all depends on how you work the loan package.
I went 100% financing with FHA, no PMI.

PMI = bad

Get a 120% loan (two loans) and use the second as the down on the first - viola NO PMI! This could save you 100s/mo in PMI insurance savings, albeit at a higher rate. Refi later into one loan using appreciation to cover difference.

/pro advice
Click to expand...
That is taking into account that you live in an area that appreciation outpaces interest rates. I've seen way too many people get screwed doing this because they can't afford the loan they are getting to begin with.
Click to expand...


You are right, FHA loans DONT have PMI, the have MIP. Call your mortgage company and ask them out how much your MIP premium is. NEVER GO FHA!!!!!! Its a 'last resort' mortgage because it has the highest mortgage insurance premiums.
 
Originally posted by: z0mb13
Originally posted by: GagHalfrunt
Very few lenders are going to do 0% down and even fewer are going to do it for a person with bad credit or no credit. If you do find a deal for 0% down it's either going to be for property that they can't get rid of any other way or you're going to get raped on the price and wind up spending 20% more than you should have. BAD IDEA.
Click to expand...

wrong. There are subprime lenders out there that would do 100% easily. These are subprime lenders, and of course you will be getting a worse rate than if you go to a prime lender.

The deal will be structured 80% for first and 20% for second. the interest on the 20% would probably be around 11-12% depending on credit.
Also lenders usually add points for condos, what this means is if you buy a condo, your interest point will be higher than if you buy a typical SFR. usually its around a quarter point to half point add.
Click to expand...

Not really accurate. I have a pair of mortgages (80/20). The first is fixed at 6%, and the second is fixed at 6.75%.
 
Noone seems to have mentioned the big risk of 100% financing. If the value of your home drops and you need to sell, you have to come up with the cash to cover the loss to pay off the mortgage. You could end up forced to stay in that house for a while until you can afford to get out from under...
 
Could you guys give me a glossary? I don't know what these abbreviations stand for.

woowoo - I'm tempted to do that. Thing is, cheap rent that will allow me to save is not easy to find here in Chicago. If I share a place it would be much easier to save though...
 
How old are you? Another thing to consider is all the freebies you get living at home. Like food, cable, power, heat, etc. Make sure to factor that in. My sisters fiance is 22 and has been saving living at home, and is planning on building a custom home. I am worried for him because he has never lived on his own and may not know what to expect with all the expenses and whatnot.
 
I can't live at home any more. The house has been sold, we have to be out by March 30th, and the lease on my parents' new condo (1 year rental) specifies two adults only.

Besides, I'm too old for home living any more (27).
 
Originally posted by: Mwilding
Noone seems to have mentioned the big risk of 100% financing. If the value of your home drops and you need to sell, you have to come up with the cash to cover the loss to pay off the mortgage. You could end up forced to stay in that house for a while until you can afford to get out from under...
Click to expand...

So the only difference to higher down payment in depreciating market, yoyu have ALREADY paid that money up front? No real difference if its 100% or 80% as far as risk to you. SOme would venture the guess that 0 down IS less risk...
100% is somewhat more risk to lender...thats why the cost is higher. And often for 100% loans, the lender is more conservative with the appraisal figures...and less likely to just "hit the number".
 
Originally posted by: sm8000
Could you guys give me a glossary? I don't know what these abbreviations stand for.

woowoo - I'm tempted to do that. Thing is, cheap rent that will allow me to save is not easy to find here in Chicago. If I share a place it would be much easier to save though...
Click to expand...

Well before we go any further... you should ask yourself a few questions.

How long will you plan on living in the condo? If less than 5 years, you will probably lose money on the deal and you are better off renting-- in most markets, anyways.

How good is your credit? If you have poor credit or no credit, the chances of you getting a no-down payment loan with a good rate are about nil. You can get financed, but with a subprime lender with an 8% first mortgage and a 10-12% second mortgage-- which will make a HUGE difference on your payments and your monthly interest expenditures.

 
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