This is a loan where the borrower does not have to put any money down on the home. The borrower can then use their money for closing cost, title fees etc…
80/20 loans are sometimes referred to as Piggyback loans and have the added benefit of not requiring mortgage insurance.
Not all lenders will accept seller-paid closing costs. Some won’t, some will allow up to 3% of the purchase price, and some will allow 6%.
When the seller does agree to pay the closing costs of the loan, they aren’t actually paying for it themselves. They generally raise the purchase price an amount equal to the closing costs. The borrower is still paying it, but it is being added to the loan amount.
In many cases, a borrower can get a home loan with no out of pocket expenses when a seller agrees to pay closing costs. In this scenario, the sales agreement must be specific and state that the seller will pay borrowers closing costs up to a certain percentage or dollar amount. Some lenders only allow seller paid closing costs for non recurring items like one time lender fees. However some lenders allow non recurring and recurring closing costs to be paid by the seller, for example: the borrowers prepaid hazard insurance fees.
107% Purchase Loans
There are also purchase loans that will allow buyers to borrower as high as 107% of the value of the home (purchase price or appraisal value – whichever is lower). This will allow the buyer to use the 7% to pay for closing costs and debt consolidation.
If a home buyer has enough money to cover the necessary closing costs associated with the purchase, in other words, he needs only to take out a 100% loan rather than a 103%, 106% loan, he would have more lenders and loan programs to choose from, and better interest rate structure as a result.
There are different types of 100% loans. You can either get 1 loan for 100% or an “80/20” loan. Speak to your mortgage professional to see which program is best for you!
Buying Home Without Making Down Payment
Buying a home with no money down is becoming much easier to do and very popular among Americas homeowners. For the year of 2005 almost 50% of first time homebuyers obtained mortgage financing putting no money down on their home for a down payment. This number truly is remarkable and helps explain why the percentage of Americans buying homes vs. renting continues to grow each year. There are many advantages to buying a home so please contact your WI mortgage company immediately to see if you are eligible to buy a home with putting zero money down.
It is even possible for you to buy a home with zero money out of pocket. A popular way to do this is to have the home seller pay your closing costs for you. Most lenders allow the seller to contribute at least 3% of the purchase price toward your closing costs.
A common way to structure Zero Money Down Home Loans is the 80/20 Piggyback. The 80/20 is a combination of two mortgages, with the first mortgage financing 80% of the purchase and a second mortgage of the remaining 20%.
If you are buying a home with nothing down, your interest rate will be higher than if you have a down payment. Traditionally, 20% was a typical down payment. So for most lenders 20% or more down will get you the best rate for your situation. The lower your down payment drops below 20%, the higher your interest rate will be.
103% Loan Programs
There are also 103% loan programs where the additional 3% of the purchase price can be used to pay for closing costs. If you don’t have the money for closing costs and/or the seller will not agree to a “seller assist” this may be a great option for you.
Not all 100% Financing can be accomplished with no money out of pocket. There are some costs to buying a home not incurred from the mortgage, such as home owner’s insurance and property taxes which may need to be paid a year in advance.
Buying a home has become much easier because mortgages with no down payment required have become much more available in the mortgage market.
Lenders have increased the loan amounts they are willing to lend with no down payment. Some lenders have reduced the credit score required. In addition, some lenders are offering interest-only payments to make qualifying easier.
There are financial institutions that offer loans with no down payment required up to $1,400,000 with a credit score as low as 620. Some also offer loans with no down payment required up to $700,000 with a credit score as low as 580. Besides, full documentation and stated income loans are available.
Generally speaking the better your credit the better your chances of getting Zero Money Down Home Loan. However, this kind of loans are available to homebuyers who have less than perfect credit too.
Even if you are planning on utilizing 100% financing, you will need to submit an earnest money check when you submit an offer on a house. The amount of the check will vary depending on your market, and the price of the home you are looking at. Plan on giving the seller at least $500-$1,000, and possibly more if you are looking at a higher end home.