| 100% finance mortgages are mortgages with | | | | Each lender has their own criteria for deciding who |
| zero money down required at the time of the | | | | will meet the required qualifications for a |
| initial loan. The main advantage of this type of | | | | zero-down loan. Most sub-prime lenders require |
| loan is the ability to buy a home with almost no | | | | any bankruptcies or foreclosures to have been at |
| money down. Providing 100% financing of the | | | | least twelve months ago. A conventional loan |
| purchase price of your home, this mortgage is | | | | requires these to be discharged for two to four |
| specifically designed for homebuyers who have | | | | years ago. |
| limited available cash, but excellent credit. | | | | While a credit score of 600 or higher is best, large |
| 100% financing offers complete financing of your | | | | cash reserves can also qualify you. Six to twelve |
| property. The other option, 80/20, finances your | | | | month's worth of cash reserves in the form of |
| mortgage with two loans. If you have a strong | | | | savings, money market, or other liquid assets are |
| credit profile but have limited funds to commit to | | | | considered ideal. |
| a down payment, then an 80/20 mortgage is just | | | | If you choose 80/20 financing with the seller |
| right for you. Lenders typically require a down | | | | carrying the second mortgage, you can qualify |
| payment of at least 20 percent of the purchase | | | | with sub-prime lenders with a score of 560. |
| price. If the loan amount is for more than 80 | | | | You will also want to decide what type of |
| percent of the purchase price, PMI is usually | | | | mortgage you want. An ARM is easier to qualify |
| required. You can avoid paying PMI by getting a | | | | for and has lower rates. A fixed rate mortgage |
| second mortgage ('piggyback loan') to back up | | | | offers the safety of a constant interest rate |
| your first mortgage. | | | | over the life of your loan. |
| The first mortgage is provided for 80 percent of | | | | Typically an ARM will be a better deal if you plan |
| the cost of the home and the 'piggyback' second | | | | to refinance within a couple of years. After you |
| mortgage is for the remaining 20 percent. The 80 | | | | have improved your credit history, you can |
| percent first mortgage can be a fixed-rate | | | | refinance for a conventional mortgage with low |
| (15-year or 30-year), adjustable-rate (usually 5/1, | | | | interest rates. |
| 7/1 or 10/1 fixed period ARM) or interest-only | | | | The two main benefits of 100% financing are: |
| loan. The 20 percent second mortgage can be a | | | | constant monthly payments - with a fixed rate |
| home equity line of credit that changes with the | | | | mortgage, your monthly principal and interest |
| prime rate. Combined, the two loans allow you to | | | | payments stay the same throughout the life of |
| purchase 100% of your home with no money | | | | your loan, so you are protected against any |
| down. Both loans may be carried by your lender, | | | | unexpected interest rate increases; frees up cash |
| but sometimes the seller or a second lender is | | | | - existing funds can be used for closing costs or |
| required to carry the 20% mortgage. | | | | other needs, rather than a home down payment. |