100 Percent Mortgages
Homeownership is something that most people dream of but have a difficult time getting there. During the housing boom there was a way to own your own home with a deal known as 100 percent mortgages.
You may ask what a 100 percent mortgage is, it is essentially what it says; the mortgage company loans the buyer the total purchase price of the home in addition to costs and fees up to 125% of the purchase price. This type of financing is usually used by people who do not have money saved up for a down payment yet still want the ‘status symbol’ of home ownership.
With this type of mortgage comes numerous risks that need to be considered prior to signing on the dotted line. First the buyer will most likely pay higher interest rates and higher lending costs. Most people who go this route end up ‘upside down’ from the day they walk through their new from door.
As with traditional lending there are various types of full mortgages available. If you are looking at this type of financing make sure that you find a lender who offers a “capped mortgage”. What this means is you have a set interest rate that is locked in from the day you sign your closing papers or even a few weeks before. In doing so, the home buyer ensures that their monthly house payments will stay the same through the life of the loan and not fluctuate with the market. If you are not able to get a “capped mortgage” you will most likely suffer in the future; as mortgage interest rates rise your monthly payment will rise.
These mortgages were very popular for a very long time until the world economic downturn. Trying to find a lender that will offer 100% of your proposed homes value is nearly impossible. In today’s housing finance market most lenders require that the purchaser have anywhere from five to twenty percent down. This helps the lender know that you have cash available to make your monthly payments.
If you are lucky enough to find one of the very few lenders that may consider offer this type of financing, understand that you must have a guarantor. A guarantor essentially steps up and tells the lender that if the homeowner is not able to pay, they will make the payment on their behalf. This person must demonstrate the financial means to pay not only their own personal expenses but the expenses of the person they are guaranteeing as well.
Look in any neighborhood and you will see numerous homes for sale that are victims of the 100 percent mortgage boom. The homeowners were put into a home with zero money down and no type of home ownership education. Not realizing the cost of owning a home in addition to the expenses involved with the upkeep, these owners are left out in the cold and the banks are left with a house they cannot sell.