Getting 100% financing with bad credit can get you into a home
with little out-of-pocket expense. However, higher rates will
make the loan more expensive than financing with a down payment.
There are some cases when zero down can be a benefit, especially
if you plan to move or refinance soon.
The Cost Of Zero Down
Zero down will cost you more with higher interest rates. These
rates will also increase your monthly payments. Some financing
companies also require you to pay additional points or fees at
closing. It is best to request quotes for 100% financing from
many lenders to find the best offer.
You can reduce these rates with an adjustable rate mortgage
(ARM). These types of loans are the easiest to qualify for and
start with lower monthly payments. The only drawback is that
rates and payments can increase over time. But you always have
the option of refinancing to lock in your current rates.
Saving On Living Expenses
While 100% financing can be expensive, it will save you money on
living expenses. Purchasing a home is an investment, unlike
rent. Your monthly payment is increasing your home's value. Time
and market demand will also increase your property's value.
By working with a subprime lender, you don't have to worry about
private mortgage insurance (PMI) with zero down. Lenders absorb
the risk with the higher rates. You also have the tax deduction
of your interest payments each year and in some cases, the
closing costs of the loan.
Financing Based On Your Future Goals
Zero down loans do have a place for homeowners. If zero down
means the difference between renting and owning, then invest
with the 100% financed loan. By keeping some cash reserves, you
improve your credit score and protect yourself from a financial
emergency.
If you plan on moving or refinancing in a few years, then a zero
down loan doesn't have the full financial impact. Since you are
paying interest on a short period, you don't suffer years of
higher rates.
As with any type of mortgage, shop around for lenders. Be honest
about the financing package you want. And remember, you can
refinance for better rates and terms as your credit score
improves.
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