Get a Home Loan With 100% Financing – Is It Right For You?

Buying a home is an exciting milestone in life. But saving up enough money for a down payment can be a major roadblock, especially for first-time homebuyers. That’s where 100% financing home loans come in.

What Are 100% Financing Home Loans?

A 100% financing home loan, also called a no-money-down mortgage, allows you to buy a home without making a down payment. The loan covers 100% of the home’s purchase price.

With a conventional mortgage, you typically need to put down around 10-20% of the purchase price as a down payment. But with 100% financing, you can get into a home without that large chunk of cash upfront.

Who Offers 100% Financing Home Loans?

There are a few options for no-money-down mortgages

• FHA loans – These government-backed loans let you buy a home with a credit score as low as 500 and with just 3.5% down.

• VA loans – For veterans and military members. No down payment is required.

• USDA loans – For homes in rural areas. 100% financing available.

Some lenders also offer portfolio loans that provide 100% financing. Navy Federal Credit Union is one lender that offers 100% financing options.

Pros of 100% Financing Home Loans

1. Buy sooner

The biggest benefit of 100% financing is that you don’t have to save up a large down payment. This allows first-time homebuyers or those with limited savings to purchase a home years sooner.

2. Lower upfront costs

With no down payment required, you’ll only have to pay closing costs upfront, which are typically 2-5% of the mortgage amount. Significantly less than a 10-20% down payment.

3. Build equity faster

When you don’t put any money down, all your mortgage payments go toward the loan principal from day one. This lets you build equity and ownership in the home faster.

4. Lower mortgage rates

Government-backed loans like FHA and VA loans can offer lower interest rates than conventional loans. Making them more affordable even without a down payment.

Cons of 100% Financing Home Loans

1. Higher interest rates

While government loans offer competitive rates, lender portfolio loans with 100% financing often have higher interest rates, since they are riskier with no down payment.

2. Mortgage insurance required

Most zero-down mortgages require you to pay mortgage insurance until you reach 20% equity in the home. This adds to your monthly payment.

3. Harder to qualify

Lenders are more cautious when no down payment is involved. You’ll need a credit score of at least 620, stable income, and low debt-to-income ratio to qualify.

4. Less equity

With no down payment, it takes longer to build equity in your home. This can make it harder to sell or refinance until you’ve owned the home for a few years.

Who Should Consider 100% Financing?

Here are some homebuyers who may benefit from a no-money-down mortgage:

• First-time homebuyers without cash for a down payment

• Buyers who want to keep savings intact for emergencies or other goals

• Military members and veterans eligible for a VA loan

• Homebuyers in rural areas who qualify for a USDA loan

• Buyers with good credit (720+) but limited savings

• Current homeowners looking to refinance with low equity

Tips for Getting Approved for 100% Financing

If you want to get a no-down-payment mortgage, keep these tips in mind:

• Have a credit score above 620 – Lenders will want to see good credit with 100% financing.

• Reduce debt – The lower your debts and monthly payments, the better. Pay down credit cards and auto loans first.

• Save up for closing costs – You’ll need cash for closing costs, appraisal, etc even with 0% down.

• Pick an affordable home – To keep your debt-to-income ratio low, don’t max out your budget.

• Get prequalified – Talk to a lender and confirm you meet requirements before house hunting.

• Know the mortgage rates – Compare interest rates across loan types and lenders.

Alternatives to 100% Financing

If you don’t qualify for a no-money-down mortgage, here are some options that can help you buy sooner:

• Low down payment loans – Options like 3-5% down FHA loans allow a smaller down payment.

• Down payment assistance programs – State and local programs provide grants or loans to help cover down payments.

• Seller contributions – Ask the seller to cover 3-6% of closing costs or your down payment.

• Shared equity programs – These let you buy part of the home and pay lower upfront costs.

• Bridge loan – A short-term second loan that covers your down payment. You pay this loan off when you sell your other property.

The Bottom Line

While 100% financing isn’t right for everyone, it can be a great way for credit-worthy buyers to purchase a home without a large down payment. Just shop around for the best rates and terms. With the right no-money-down mortgage, you could be moving into your dream home even sooner than you thought possible.