Have you been working hard all your life yet never got to socking away enough money to pay for a traditional mortgage? Or, do you have money but would rather invest it instead of putting down money for a new home? Whether you are short on cash or have cash but just do not want to spend it on housing, you can get a home thanks to 100% financing. Among all the options open to you, no money down financing is one of the most attractive. It's quick, it's easy, and it's definitely not too good to be true.
The truth of the matter is, 100% financing is not without its disadvantages. It does.
Advantages
1. You don't have to worry about down payment. Shop around for the most competitive mortgage rate available. Then, arrange for a lender to provide 100 financing.
Here's how it works: lenders often require would-be homeowners to make a 20% downpayment on the house's sales price. Now, if your loan exceeds 80% of the house's sales price, you will be asked to shell out money for PMI or Private Mortgage Insurance. But, you can avoid paying this fee. How? Back your first mortgage with a second mortgage! Your new mortgage is called a piggyback loan, and it takes care of the 20% you do not have the money for. You can repay it much later on using your home equity credit!
2. You save on rent. As soon as you obtain 100% financing on your new property, you can move into it and save on rent forever.
3. You can use your money in other ways. Because you're getting your house using other people's money, you can make better use of the cash that you did not spend. Invest, it, grow it.
Disadvantages
1. You may still be asked to pay. Contracts vary. Some may require you to pay closing costs or demand that you make upfront payment on certain fees. To avoid this, sign with the lender offering the most competitive terms for no money down financing.
2. You will be stuck with a higher interest rate. Even if you have good credit, expect your interest rate to be much higher. This is to be expected because you are after all getting housing under a scheme for 100% financing. Here's how it works logically: because you are not putting down any cash (cash that normally serves as security on the loan) on your home, you are immediately classified a high-risk borrower. For this reason, you could also be saddled with a repayment period that is longer than usual.
100% financing loans exist, and they exist for a lot of good reasons. Before you take out one for yourself, however, be sure to take the time to weigh the pros and cons of getting such a loan. Also, always read the fine print. You may think you are getting a good deal, only to be hit with over-the-top interest rates much later.
Allegro Mortgages Corp. - Best Broker for All Your Financing Requirements (416) 987-0008
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