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If you are searching for financing , and are reading this article, I'm sure you've watched some late-night TV, and probably tuned in to one of those "No money down" real estate infomercials. I think we've all heard the infomercial gurus touting their 100% financing mantras again and again. Before I got into the Real Estate Business, I believed this was all hype. Part of it is, but 100%, 103%, and even 107% financing is available today. I would like to dispel some myths of "No money down":
Myth #1
You've got to find a "motivated seller"- Simply not true, most of the methods used to purchase single family homes have very little to do with seller held second mortgages, nor any actions of financing by the seller. 100% financing today has everthing to do with selecting the right agent and mortgage broker. Some agents and mortgage brokers "cherry pick" meaning they spend their time and energy on clients and deals which earn them the most return. 100% financing programs do not usually pay as well as when the buyer puts his own money on the line.
Myth #2
If you get 100% financing from a bank or mortgage lender, you will have to pay P.M.I. or Private Mortgage Insurance.- PMI insures the top 20% of the loan, or what would ordinarily be the buyer's down payment. If the loan goes into default, the PMI policy would go into effect, and repay the bank's shortage between the 80% and the balance of the loan. None of my clients have EVER paid PMI. To avoid the PMI premium, I counsel my clients and their mortgage broker to structure the loan differently, where there are actually two seperate mortgages, one for 80% of sale price [a first mortgage], and a 20% second mortgage, sometimes held at a different lender, but occasionally, the second loan is written by the first mortgage holder. Ta-da- NO PMI.
Myth #3
You can't buy a home worth living in with 100% financing, you can only buy small houses, or houses no one else wants.- Another fallacy, You can purchase any home with no down payment, provided you pass moderate credit, income, and debt ratio checks.
Myth #4
You've got to have great credit for 100% financing.-Not entirely accurate, while having a credit score in the 800's will get you a much better interest rate, you can get approved for a 100% financed mortgage with scores well into the 600's. You can make your purchase with an interest rate higher than you want to keep, then refinance in 12-24 months at a much improved rate after you become "vested" in the property.
Myth #5
You have to NOT need 100% financing if you want to get it.-Not true, Once again, having some cash in the bank will assist you in financing, most products require only 2 months P.I.T.I. reserves in the bank, while others make no requirement about proving cash [NINA's]
Myth #6
I can't get financed for 100%, because I'm self-employed-While it's true that self employed borrowers [buyers] have more difficulty borrowing 100%, provided you can show "discretionary income" and can provide a rental or mortgage history, the right mortgage professional can solve these problems and get financing approved. Contact a knowlegable Realtor with mortgage experience for further details.
While dispelling these "myths" is easy, I'm sure you're wondering, why don't more people get this kind of financing? One of the reasons is that the knowlege on the professional side is not very forthcoming. New Realtors are not pulled to the side and given a fat handout which says "Ulitmate Guide to Getting Almost Anyone Financed!", as a result, your typical agent will pre-qualify a buyer, categorize them into Buyer or Non-Buyer, and move on to the next one. I work differently, I want to leave no buyer behind. I believe that everyone is entitled to own their own home. It is a rite of passage that has left too many hard-working folks behind. The next reason is that in the time it takes to assist a buyer with problems to buy, a top-producing Realtor can sell two homes. I believe that when I help a buyer to solve his or her problems, and get them into their first home, that they will be my Client for life, and that their loyalty is worth more than money.
Information Provided Courtesy of The Nashville Team
