**As of September 2008, the zero downpayment loan option is no longer option available due to many of these loans being in default.  If the loans reappear, they may or not resemble the below description. 

Zero downpayment for a home up to a $1 million dollar amount?  In fact with excellent credit (720 FICO credit score and above) you can do a no income no asset loan!  Click here to learn more on the NINA loan or go to the main menu.

You can also obtain 100% financing on a fully documented loan with a 580 FICO score and stated income loan with a 640 FICO credit score. Qualifications vary.

Fully documented, stated income, no ratio, and imperfect credit loans (loan types located on the main menu) are available for 100% financing.

FICO credit scores, income and asset situations all vary, depending on what loan you qualify for.

Call/e-mail me  or click here to apply on-line and I can prequalify and customize a loan for you!

Kevin Walton

Cell: 805-276-1942

Even though there is no money required for a downpayment, you will still have to pay closing costs and have reserves.

Click on the closing costs link on the main menu to learn more.

Advantages on 100% financing loans:

Gets you into a home with less money!

Disadvantages:

Higher rates and fees to obtain the financing.

What are reserves?

In addition to closing costs, to obtain a better interest rate on your loan (s) you may need to show up to 3 months reserves.  One month reserves equates to 30 days of principle and interest (P&I), 1/12 of your yearly property taxes + 1/12 of your homeowners insurance premium or 1 month of your homeowner association dues if the property is a condo.

Example:

1 month principle and interest on the first mortgage                                       $2001.71

1 month principle and interest on the second mortgage                                    $663.73

1/12 of your annual property tax bill                                                             $400.00

1/12 of your annual homeowners insurance premium        

$75.00

The total for 1 month of reserves =  $3140.44

$3140.44 x 3 months of reserves=   $9421.32                                             

The above are figures for a purchase price of $385,000 with a first mortgage loan amount of $308,000 and interest rate of 6.75%, and a $77,000 loan amount and 9.75% interest rate on a second mortgage.  Interest only would be available as well with a credit score of 680 or better and make the payment $270.00 lower per month.

There are some lenders that do not require any reserves for 100% financing, but the interest rates and fees are more expensive to obtain this type of financing.  How much more?  Count on .25% - .50% higher rate on the first mortgage and 1-2 percent higher on the second mortgage.

Types of loans available for 100% financing

1st mortgages: 50,45, 40 and 30 year loans are available on the first mortgage along with various hybrid fixed loans such as the 10,7,5,3 and 2 year fixed which than become adjustable after their initial fixed period.  With the exception of the 50,45 and 40 year loans, all loans should be available with an interest only payment option. 2nd mortgages, are available on various terms, 15,20 and 30 years with and without interest only.

2nd Mortgages

You notice above I have in the example, a second mortgage payment listed underneath the first mortgage payment.  To attain 100% financing, there are a few ways to get there.  Obtaining one loan, for 100% of the purchase price or combining the financing into two loans.

The 80/20 combo vs. the 1 loan scenario

A first mortgage and a second mortgage together, a combo, provide financing for 100% of the value of the property.  Why not take 1 loan for 100% of the purchase price/refinance?  Because there is something called PMI insurance that is a cost incurred by you whenever you finance greater than 80% of the value of the home on one loan.  Doing two loans is a way around the PMI.  I will cover PMI a bit later down below.

The combo is the current most common methode to obtain 100% financing.  As mentioned above the first mortgage is typically 80% of the value of the property and the second mortgage is 20% of the value of the property, together making a 100% transaction.

The overall payment is a bit cheaper doing the combo vs. one loan.  The first mortgage rate has a better interest rate since it is lending only 80% of the value of the property, which makes it safe for the lender. The second mortgage lender, which may or may not be the same lender as the first mortgage lender, assumes the rest of the risk. 

 On the one loan scenario, since the lender is assuming the whole risk on one loan, the interest rate is higher than the 80% first mortgage on the combo.  Think about it for a moment.  In a down real estate market where values are falling, if you purchased a home for $500,000 with a 100% combo loan, and the value of your home fell to $450,000. If you needed to sell your home there wouldn't be enough equity to payoff the 2nd mortgage.  Due to this possibility, the 2nd mortgage is priced higher.  However if there was enough equity to payoff the first mortgage, being a safer bet, you get a better interest rate.  The second mortgage more than likely was sold to another lender during the lifetime of the loan, so the lender won't lose on second mortgage since they no longer have it.

The same goes for the 100% 1 loan scenario. If there isn't enough equity to payoff the loan in full, due to a low value, the first lender, who has assumed the entire risk by doing one loan stands a chance to lose quite a bit of money in the form of a short sale.

On the combo, the second mortgage interest rate is 2-3 percent higher than the first mortgage rate, but with a good FICO credit score, it still makes for a cheaper monthly payment vs. the one loan scenario.

An example of an 80/20 loan on a $500,000 value of a home.

First mortgage: 80% of the value = $400,000 at a 6.75% interest rate                         $2250.00

Second mortgage: 20% of the value = $100,000 at a 8.75% rate                                 $789.39

Property taxes: $500,000 x 1.25% = $6250/12 months                                                $521.00

Homeowners insurance $700.00 annual premium /12 months                                        $  58.00

Total payment                                                                                                    $3780.00

The above loan is based on a 680 FICO credit score on a 30 year fixed loan with a 10 year interest only option feature, stated income/verified assets.

Another option is 1 loan for the entire amount.  This option has been in the past obsolete but as interest rates climb it may be something to look into.  Whether or not the loan has PMI will play a role if this loan is worth exploring.

What is PMI?

PMI is an acronym for private mortgage insurance.  PMI covers the lender not you.  History shows that the loans that most commonly go into default are loans that are 80% of the value of the home or greater.  PMI is an insurance premium that you pay either on a monthly basis or in the form of a higher interest rate that pays the lender a percentage of a loss incurred when a lender forecloses and takes a property back from a borrower.

If your loan is less than 80% of the property value, than you don't need PMI.  The gripe against PMI is that you as a borrower don't get anything in exchange for paying this insurance.  You are protecting your lenders interest with your money in the form of a monthly premium you have to pay to the lender.

Some lenders don't charge PMI.  In exchange they surcharge the interest rate.  With the higher rate and payment, the lender can take a portion of your higher payment, and purchase PMI themselves.  Either way, you are paying!.

PMI is not tax deductible 

If you pay the premium monthly, you can't deduct it on your income taxes.  If you take the higher interest rate, than any interest you pay pay on your loan is tax deductible.  Please check with your CPA or Tax Preparer to check on deductions prior making a decision of which PMI route you choose.

Single loan payment example with borrower paying PMI

Example:

A single loan scenario for a $500,000 loan for 100% of the value of the home.

First mortgage: A single loan at 7.5%                                                                                $3125.00

PMI monthly mortgage premium:                                                                                        $  170.00

Property tax: same as above in the 80/20 scenario                                                           $  521.00

Homeowners insurance: same as above                                                                            $   58.00

Total monthly payment:                                                                                                      $3874.00

Figures are based on a 30 year fixed with a 10 year interest only option with a 680 FICO credit score on a stated income/verified asset basis.

As you can see, the payment is lower on the combo.  Keep in mind that the PMI is not a tax deduction.  So you may lose twice in the form of higher payments and less tax deductions.

In addition obtaining PMI insurance is a separate approval from the insurance company who is issuing the insurance to the lender.  You may get loan approval from the lender, but if the PMI company doesn't approve the insurance, you don't get the loan, since the lender won't do the loan without the insurance.

If the lender chose to waive the PMI and bump the rate, your rate would go up .375-.75%.  So monthly payments would be roughly the same or up to 5% higher (in this case $150.00 higher per month).

The lender can cancel the PMI

Once your loan has funded there is a way to get rid of the PMI without refinancing the loan.  PMI may get cancelled once your loan balance has been paid down below 78% of the original property value. This is a law the lender must abide by.   In other words you have to payoff 22% of your balance before the lender will entertain cancelling the insurance, and you can't have any late mortgage payments (usually 30 days past your due date) prior to requesting the cancellation.

If your home goes up significantly in value and you call to ask that the lender remove the insurance due to attaining 25% in additional equity since your loan closed, the lender may not cancel the insurance because there is no law that says they have to cancel it.  The law only pertains to when you pay down the balance not on accumulated equity.  However it's a worth a try anyway, give them a call to cancel and see what they say.

The other way to get rid of PMI is to refinance the loan once you have enough equity, which would mean the first mortgage would have to be for no more than 80% of the value of the home or you can always do a combo.

You can never cancel PMI if you have an FHA loan

I don't cover FHA loans on my website since their products are obsolete and costly.  If FHA comes out with a new competitive loan program, I will highlight it on my website.

Low income wage earners can obtain 100% financing for loans up to $650,000

The No Ratio loan click here to learn more about the No Ratio loan or go to the main menu, allows for 100% financing and not disclosing any income to the lender.  Good credit is required (680 FICO credit score of above), but job income and type of job position is a non-issue.  The loan is only available on a combo basis.

Call me for details or click here to apply on-line today!

Kevin Walton

Cell: 805-276-1942