No one will deny that raising the necessary funds to buy a home is a difficult endeavor. But trying to do this with bad credit scores for your name is even more difficult. What not everyone knows is that 100% funded mortgage loans are available even when bad credit comes into the equation.
For current renters, this is welcome news, giving them the opportunity to become homeowners despite their imperfect financial situation. But how can a bad credit bureau permit be possible when a typical mortgage is so high?
There are good reasons why some lenders are willing to grant a mortgage loan. What needs to be remembered is that no lender is out to lose money, so their offers are calculated to benefit them too. Here are some factors to consider when buying a home.
What is 100% financing?
The idea of 100% funded mortgage loans might seem a little odd, but there’s nothing to distrust. Typically, when buying a property, a down payment is made and the remainder is paid off with a mortgage. 100% financing means no deposit is required.
It is even possible to get 105% financing, with the additional 5% used to cover closing costs of the real estate deal. Between legal representation and other costs, the fee can be $10,000 to $30,000 on top of the property price, so getting approved with bad credit can prove expensive.
However, there are also certain conditions that must be taken into account. For example, interest rates on a mortgage loan can be quite high and the interest rate structure can be quite complicated. Therefore, some planning and research is required before proceeding with the application.
Benefits of 100% financing
Despite the costs involved, there are some real benefits to finding 100% funded mortgage loans. The most obvious is the fact that no deposit is required. This means you don’t have to spend time saving up to $20,000 in cash.
Another reason is that there is no need to pay for private mortgage insurance as it is covered by the interest rate. This rate will be much higher than normal, but is proving beneficial overall – not least because those who buy this insurance separately end up charging a fee too.
Of course, one key benefit is that getting a permit with bad credit makes the chance of buying a home a reality. This alone makes up for all the negative aspects that can be associated with the mortgage loan covering the total price of the property.
Disadvantages of 100% financing
There are some downsides to getting 100% funded mortgage loans. For example, even if you don’t have to pay a down payment, the total cost of the mortgage may be higher. On a $200,000 property, a $200,000 mortgage repaid over 30 years, including interest, costs more than paying off a $180,000 mortgage after paying a 10% down payment .
Also keep in mind that the interest rate is higher because the applicant gets an approval with bad credit. This means that the full repayment amount will be very high for the life of the mortgage. Additionally, the interest rate is adjustable, not fixed, which means repayments can increase dramatically over time.
Finally, the buyer starts out with a 100% mortgage loan with zero equity. Usually equity is represented by the amount of the deposit. And without equity, there is no security in case a loan is needed in the near future.