100% Home Equity Loan Financing: Zero Down

Are you in the market for a home, but don’t have the cash for a hefty down payment? Or maybe you have the cash, but you want to use it for another type of purchase? Then 100% financing, also called a zero down home loan, might be right for you.

The first step to understanding 100% financing is to be aware of something called Private Mortgage Insurance (PMI). According to the informational website, alloptions.com, “PMI insures the lender against loss if the borrower defaults on the mortgage loan. PMI is usually required when the borrower’s down payment or equity is less than 20% of the loan value.” Although not every mortgage lender insists on mortgage insurance, those who adhere to the Fannie Mae and Freddie Mac loan approval guidelines will require it.

PMI is added into the cost of your mortgage, so your monthly payments are higher than if you had put 20% down on the loan. Therefore, many people who are looking for a no money down home loan and want to avoid PMI, turn to something called an 80-20 loan. An 80-20 home loan takes the cost of the home and divides it into two mortgages. The first mortgage is for 80% of the home’s value. Depending on the specific needs and wants of the borrower, the first mortgage can be a fixed rate, adjustable rate, or interest only loan. The second mortgage is for 20% of the cost of the home. This second mortgage, also called a “piggyback loan,” is usually a fixed mortgage or a home equity line of credit. With the two mortgages, you are financing 100% of the cost of your home AND avoiding the additional monthly cost of PMI.

Zero down home loans can be a great option for those who don’t have the ability, or the desire, to put down a large down payment. With an 80-20 mortgage, you are able to avoid PMI and the required 5% down payment that many conventional mortgage products require. Before you begin shopping for an 80-20 loan, it is important to know and understand your credit score, as many lenders require a strong credit history for this particular mortgage option.

By: Jennifer Frakes

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Jennifer is an author who has produced many helpful home loan related articles: 100% Home Equity Loan Financing & Bad Credit Home Equity Loans. If you need more information for 80-20 home loan rates, or HELOC Refinancing, check out Second Mortgage Refinancing.