Looking for the right kind of financing for your new home is just as important as making sure that the home you are buying is worth investing in. While there is no shortage of different mortgage types, not everyone is suitable for your pocket. In this post, we will be looking at the pros and cons of 100% Home Financing.
If you’re not careful in getting the right home financing, it could damage your cash flow for years to come unless you refinance the property or sell it away. This is why it is important to understand the ins and outs of home financing before you opt for one.
We will reveal all the negatives and positives of zero down payment loans so you can make an informed decision.
Where to Get a 100% Home Financing Loan?
There are many financial and government institutions that make 100-percent financing available. Some of these loan s include first-time homebuyer loans, a housing program looked after by the U.S Department of Agriculture, and home loans offered by the Department of Veterans Affairs.
Federally backed home loan programs are often tough to qualify for, and if you ever find yourself not meeting the requirements, you could go for conventional financing through a credit union, but you need to have good credit.
The downside is that you’ll end up paying higher interest rates. However, big lenders can ease down the payment requirements for you, but they hardly ever offer 100-percent home financing.
So what are the positives and negatives of 100 percent home financing? Let’s have a look.
Pro – You Get Positive Investor Return
100% conventional financing only makes sense if you want to invest as little as possible to the home you are buying. If you plan to use the new home for investment and income purposes, then you would naturally want to invest as little as possible.
For investment purposes, 100 percent home financing is a lucrative option because you can leverage the bank financing to create a cash flow for yourself.
Pro – Easier to Qualify
100% home financing is a very attractive option if you are short on cash and don’t qualify for other first-time homebuyer loans. These loans are easy to qualify for since you do not have to pay any down payment.
While zero down payment sounds like a good option when you are short on money or have a bad credit score, it can backfire in several ways.
If you are unable to save money for the future monthly mortgage payments, or you can’t manage to pay emergency maintenance costs or property taxes, it could become hard for you to stay in the new home in the long run.
Con – There is Always a Catch
100- percent mortgage loan can various restrictions placed on the buyer. Most of these loans will require you to live in the home you buy and pay back any funds if you decide to move out.
In other words, you will not be able to rent out the house or hold it on for investment purposes. There are some requirements that you must meet as well such as the U.S Department of Agriculture’s Rural Loan Program.
This program demands that you must buy a home in a rural area.
Con – Less Equity in Home
Zero down payment loan leaves you with very little equity in the home, especially in the short term. In simpler terms, you will not be able to sell the house or refinance it. Moreover, if your home fails to appreciate in the coming time, you will still have very little equity if you decide to sell it.
Con – Higher Credit Requirements
100-percent home financing requires you to have a perfect credit score. Most lenders will want to see a credit score well over 720. Moreover, you can expect the interest rate to be very high with bigger monthly payments.
- 5 Main Factors That Determine Your Credit Score
- Why Are Credit Scores Important When Applying for a Mortgage?
- How a Mortgage Impacts Your Credit Score
Need Help Getting a First Time Homebuyer Loan?
Qualifying for a $0 down payment loan is hard especially in New Jersey if you don’t go well prepared. Aceltis Financial Group offers 5/1 ARM first time home buyer program which is an outstanding way to get into a new home without paying a single penny in down payment.
Get in touch with us today and learn your options.