Home Buyers Can Purchase With No Down Payment


With 100%  financing , the home buyer can purchase a home. The out-of-pocket investment is much less, therefore, nearly everyone can acquire the American Dream.

There are several ways to accomplish 100%  financing :

1. 80% first trust deed with a 20% second trust deed.

With this plan, you are avoiding mortgage insurance which can add to your monthly payment and also add to the initial loan amount.

2. 100% first trust deed.

This type of loan is good for those who want to make one single payment each month. This loan however, does include a mortgage insurance premium. The amount of your monthly payment will be increased for the mortgage insurance premium due monthly. This premium insures the loan amount for the lender. Once the loan is paid down to 80% of the value of the property you have purchased, you can request to have the mortgage insurance removed from your loan and payments.

3. 80% first trust deed, 10% second trust deed and 10% carry back from the seller is another option.

This combination of loans can be variable. It can also be 15% second and 5% carried back by the seller.

4. Another way to purchase a home at 100%  financing  is to go with a new FHA loan.

This loan amount however, cannot exceed $362,790 for a single family residence and $464,449 for a two-family residence. These loan amounts are for Riverside and San Bernardino Counties only, Southern California. FHA gives different loan amount options for different counties and states. A new FHA loan can go as high as 103% of the purchase price, not to exceed $362,790, which can include some of the buyers closing costs. In the event your purchase price exceeds $362,790, the buyer will need down payment funds to cover the difference. This loan also includes mortgage insurance payments.

The above descriptions show you how to purchase a home with no down payment.

Now, let’s show you how each one works:

a. 80% 1st with a 20% 2nd trust deed.

The interest rate on the first trust deed is normally based on a special interest rate because the borrower is acquiring 100%  financing  total with the same lender and that lender offers special interest rates to combine the two loans. The interest rate on the second trust deed will be higher. One thing to remember is that the lender is taking a risk with the borrower by taking back a total of 100%  financing  so the interest rates on the new first and second trust deeds will be slightly higher than if the borrower were going with just a single first trust deed at 80% and the borrower were coming in with 20% down payment in cash. Also, with this type of  financing , a lender will accept lower FICO scores and a higher debt to income ratio.

b. 100%  financing  in one single loan

The interest rate on a single first trust deed will be higher due to the fact that the borrower is obtaining a single loan amount to cover the entire cost of the home. This loan will contain a monthly payment for mortgage insurance along with the normal monthly payment. The mortgage insurance payment is a portion of a percentage based on the loan amount obtained. Typically, to get a single loan to  finance  the purchase price, your FICO scores need to be higher and your debt to income ratios need to be lower. Again, the lender is taking a risk by loaning the entire amount of the purchase price.

c. 80% 1st trust deed, 10% 2nd trust deed and 10% carried back by the seller

This is considered an 80/10/10. Again, the borrower is  financing  the entire amount of the purchase price, however, the lender is only  financing  90% of the purchase price, so the terms the lender will give the borrower for interest rates on the new 1st and 2nd trust deeds will be a little better. The risk factor has been reduced for the lender. The seller’s 3rd trust deed interest and payments will depend upon how it is structured in the course of an offer to purchase between the buyer and seller. Again, FICO scores and debt to income ratios are always a factor with the lender in deciding your interest rate and terms of the new loans.

d. FHA loans. Information based on properties purchased in Riverside and San Bernardino counties.

FHA loans are given through many lenders and the rules for a new FHA loan are slightly different. FICO scores are not used in the same way. FHA is not as concerned with FICO scores. An FHA loan is easier to obtain, but the loan amounts are considerably less than a typical conventional loan. The conforming loan amount for a conventional loan is $417,000 for a single family residence and the maximum loan for FHA is $362,790 for a single family residence. With a new FHA loan the initial mortgage insurance premium is added to the amount of the loan. Then there will be mortgage insurance payments due monthly for a term of 5 years and when the loan amount is at 80% of the value of the property purchased.

The conventional loans as described above also have options for monthly payments. A borrower can get interest only payments and 40 and 50 year amortizations, just to name a couple of options available.

Source by Patti Schopper

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