Maybe you have seen the get rich quick "guru" on television late through the night talking about buying homes with no down repayment? Ever wonder if it really can be carried out? For the first time buyer or anyone attempting to purchase a home to live in with decent credit it's an easy move to make. Most mortgage lenders are able to offer a 100 % mortgage. The usual qualifier is a credit rating of 620 or above. Although with the mortgage market becoming more competitive some lenders are accepting less credit score for the 100 percent mortgage. You will find two basic types of 100 percent mortgages. The conventional mortgage and the 80/20 mortgages.
A standard 100 % mortgage is simply one bank giving you a home loan for 100 percent of the purchase price of the property. The down fall is you will need to have private mortgage insurance (PMI) until you have 20 percent equity in the home. If you only make standard payments and don't do anything to increase the value of the house you may be looking at twelve years before you decide to have 20 percent equity. PMI is not tax deductible and may easily increase your payment by forty to sixty dollars per month.
With the 80/20 loan a lender will provide you with a first mortgage for 80 percent of the cost of a property and a 20 percent 2nd mortgage. The interest rate of the second loan is generally higher and is for a much shorter phrase. Ten years is average for the second home loan. Despite the higher interest rate and the shorter term from the second mortgage the total payment of both loans will be comparable or less than the standard 100 percent mortgage because there isn't any PMI with the 80/20 loan. The 80/20 loan is far more beneficial because all the interest paid on both loans is tax insurance deductible, each month you pay more towards the principal balance from the loans and after the second mortgage is paid off your total monthly payment is less.
Of course everyone has a different scenario. If you are only looking to stay in your home for a couple years this probably is not right the loan for you personally. It's not likely you will build enough equity in just a few years to be able to afford to sell the home and never have to bring money to the closing. Of course it is best to talk to your mortgage professional before making any kind of decisions.
