100% Financing

When you take out a mortgage it is usual that you provide a deposit (or down payment) for some part of the value of the house. Traditionally such deposits have been 20% or more of the total value. While they don’t tell you this perhaps as loudly as they might the reason is so that the mortgage company knows two things about you:

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• That you have been able to save that much money and are thus a good credit risk
• That you have your own money at risk in the house, making it more likely that you will keep up your repayments.

100% financing works rather differently.

With 100% financing the lender offers the full value of the real estate as the loan. This means that you do not need to save for a deposit, which in a fast moving market such as California can be a great benefit. You might still need to pay the closing costs and fees (although there are programs that deal with these too) but it does make it much easier to get your feet on the property ladder.

There is a small downside to 100% financing deals however. The interest rate charged is usually higher and you may have to have mortgage payment insurance as well (although again, there are other programs like 80/20 financing that take care of this). The costs and benefits are not too difficult to work out. If you simply do not have the deposit money then a 100% mortgage makes great good sense, despite the higher interest rates. If you do have the savings for a deposit then perhaps it does not.