Should you use 100 percent financing when buying a home? If you can get it, why not?
There are pros and cons to 100 percent financing. One con is that 100 percent financing doesn’t put you into the new home with very much equity. Another con is that your interest rate might be a little higher than if you put the typical 20 percent down on the table.
But now, think about the pros. If you do have money saved for a down payment, you can use that for repairs (if doing so won’t make your interest rate higher than if you had simply put the money down). The biggest pro is that 100 percent financing could get you into a home that you don’t have a down payment saved for. Should you buy a house if you don’t have down payment money saved? To answer that question, weigh your options. Are you renting a two bedroom apartment for $700 a month right now when you could buy a three bedroom home with a payment of only $600? If you are in a similar situation, consider buying. Your home purchase will be an investment. You will stop throwing money away toward rent and building equity in a house that can also serve you with various tax deductions.
When you are getting your potential new home appraised, let your appraiser know that you are seeking 100 percent financing. Ask your lending institution about financing in improvements you want to make on the property, too. Chances are that your bank will make the appraisal arrangements. Your banker will fill in your appraiser on the details he or she will need when deriving a fair market value for the property. For instance, if you make a $70,000 bid on a house that you plan to make $30,000 in improvements, let your banker know. With the knowledge that the property will have improvements made, the appraiser will be able to offer the bank a more accurate appraisal of how much the property will actually be worth with those improvements made. If that’s the case, you can probably include the cost of those improvements in your loan!
If you have any questions about whether you should use 100 percent financing or if you are even eligible for it, fill out our online application. Our mortgage professionals will be able to help you determine if 100 percent financing is an option that’s right for you.