It’s my pleasure to introduce this Guest Blog Post by Gabe Amey, Branch Manager of HomeLoan Financial. His website is HawaiiVAloans.com which offers a wealth of information.
What Happened To 100% Financing by Gabe Amey
It looks like the saying “All good things must come to an end” can now be applied to no down payment mortgage loans. If you look back at just one year ago, 100% financing was a main staple in the product line of mortgage brokers and loan officers around the country. As long as you had a decent credit score and money for closing costs (in some cases you didn’t even need to verify income) – you had a good shot at getting a loan without having to pay a down payment.
Fast forward to today – finding 100% financing to purchase a home is as hard to find as the rare Pinta Island Tortoise. With the current national housing slump affecting home values, lenders have scaled back on their willingness to finance properties without a down payment.
The biggest deterrent to 100% financing hasn’t actually been the lenders themselves, but the private mortgage insurance (PMI) companies that insure these lenders of losses occurred when a loan is in default.
Normally, when a home buyer does not put at least a 20% down payment, lenders require them to pay for mortgage insurance – which could increase the home buyer’s monthly payment about $200 – $350 per month. If for some reason the homeowner defaults on their mortgage, the lender is forced to foreclose and the PMI company steps in to insure the lender for any losses occurred during this process up to a certain percentage of the loan.
In the last few months, the major PMI companies as a whole have basically stopped insuring home buyers that don’t have a down payment. Below is a list of the seven major PMI companies and their maximum loan-to-value (LTV) that they will insure (as of 6/1/08):
As you can see, at the very minimum, a home buyer will need to put a 3% down payment (sometimes 5% depending on the PMI company) in order to get insured. In some cases, there are lenders willing to do 100% financing, but still require mortgage insurance. Without mortgage insurance for 100% financing, this product line is basically useless.
There is still one loan program that allows for 100% financing without having to get mortgage insurance – VA loans. VA loans are a government backed loan program only available to Veterans and current military personnel who are eligible. Since these loans are insured by the VA Department, the lender does not require the home buyer to purchase any additional mortgage insurance for VA loans. There are many VA loan benefits – and the ability to purchase a home without a down payment is definitely a big one.