It was possible to find 100 percent financing for a home mortgage not long ago. Those days are almost gone and so is the financing without any down payment for the most part. The near collapse of the financial system in the United States has made it difficult for most buyers to get a mortgage even with perfect or almost perfect credit scores. Only veterans have easy access to no down payment home mortgages.
The replacement of the 100% financing mortgage is now a low down payment mortgage. A FHA loan enables a qualified buyer to finance a home for up to 96.5 percent financing. The closing costs may be a gift from a relative, or a government agency may provide funds for the closing costs. The government has made these loans available to help certain individuals buy houses even without a large down payment. Many people who are elderly or who have low income qualify for FHA loans.
There is usually a minimum credit score of 620, but one company will accept applicants with scores as low as 580. Credit scores of 620 to 659 are considered to be average, and those with scores in this range may qualify for loans but will pay higher interest rates. Those who want to apply for an FHA loan and have at least a credit score of 620 can apply to a variety of lenders who will process their loans. Scores below 620 are considered to be poor credit scores, and it is difficult getting a loan with a score this low.
A totally financed mortgage has different interest rates, just as all loans do. FHA loans or low down payment loans, can have either a fixed or adjustable rate. A fixed rate remains the same for the life of the loan while an adjustable rate is subject to change at regular intervals. Of course, the fixed rate is the most economical and secure for a buyer who will probably remain within the same income bracket for many years. It is usually risky in this case for a borrower to sign for a loan with an adjustable rate that could make payments so high that he or she cannot pay the mortgage payments.
Monthly payments for an FHA low down payment loan for a house costing $200,000 range from around $1,058 to $1,505 for a 30 year fixed rate and a 15 year fixed rate respectively. Interest rates for these fixed rates range from almost five percent at 4.875 percent for a 30 year loan to four percent for a 10 year loan.
A typical home mortgage that is not an FHA loan requires a 20 percent down payment. In today’s sluggish economy, few buyers can afford to save this amount for a down payment, so many new houses have been sitting empty. 100% financing mortgages would turn the housing market around but no lender has the risk tolerance to offer them. Some of those who want to sell their houses have tried to do this for over a year or two with no success. In order to stimulate the housing market, and make borrowing and lending safer for both parties, low down payment loans have been encouraged by the government.
Any loan that does not have a 20 percent down payment equal to the house’s value requires a special insurance called Private Mortgage Insurance (PMI). This expense can add to the monthly mortgage payments, but if the buyer has some money saved, it is possible to pay the entire PMI at the closing.
The days of the 100 percent financed home mortgage may not be gone forever because they could return when the economy revives completely. If not, the low down payment loans are almost as good.