100% Financing - What are your thoughts?

What are the benefits/detriments of financing 100% of our mortgage? We were thinking of putting nothing down so we could do some construction on our new house, then get it re-assessed, which would allow us to not pay PMI since it would be worth more and that would be our equity in the house.

Any thoughts?

Re: 100% Financing - What are your thoughts?

The number one downfall is the rate will be higher on a 100% financed loan. Number two, most banks have restrictions on how to get rid of PMI and quite often, they involve time, meaning you may have to wait 3-5 years to get rid of the PMI. You are much better off with an 80-15-5, which is what I actually have.

DH is a bank manager and if you have any more questions about this type of loan, he is a vendor on the boards. If you post this question on Businesses Helping Families, he can respond.

ETA: Your home also has to go up 20% in value to get rid of PMI and the likehood of that isn't very likely.

Message edited 9/21/2006 9:34:27 PM.

Re: 100% Financing - What are your thoughts?

I am 99% sure this is what my DH wants to do (80/20)- and his a mortgage broker- so if it was that bad- we wouldn't do it

the benefits are- you have all your money to do stuff

cons- higher payment, Possible PMI
and if you plan on re-finacing after construction- more closing costs- but I know sometimes if my DH knows he is going to have to re-do a loan in a year or 2- he will waive some of the fees for the second one

edited to add- I think you have to at least wait 1 year to re-fi- b/c my Brother is doing something similar right now and I remember Jake saying that

Message edited 9/21/2006 9:37:10 PM.

Re: 100% Financing - What are your thoughts?

I just got off the phone with my mortgage company and they said I should do an 80-20 and I won't have to pay PMI. I think she said it's a split loan mortgage. I am going to check with one other mortgage company tomorrow to see if they can do any better but this deal is pretty good. The 80% would be at 6.5% and the 20% would be at 7.75%. Overall seems like it would be good.

Also, we are getting this house for a steal so adding a dormer, another bath, etc... could possible make it worth 20%more. They said we could do a formal appraisal within the first two years which I think would work too.

Let's hope it all works out because they accepted our offer tonight!!!

Re: 100% Financing - What are your thoughts?

Re: 100% Financing - What are your thoughts?

We also went w/ the 80/20 option to avoid PMI. That left us w/ plenty of cash on hand to buy appliances, and do little upgrades we want to do.

The 7.75% second mortgage is a great deal - jump on that. We are at just over 8% on our second loan and we had to shop around a long time to find that!

good luck!

Re: 100% Financing - What are your thoughts?

just so you know, there's no such thing as putting "no money down". you can do 100% financing but no seller's attorney will ever let their client sign a contract without some kind of money held in escrow, usually they look for at least $10k which will be applied towards your closing costs if you want.

you can only avoid PMI by putting 20% down but IMO i dont see a point in putting all that money down. put 10% down and then save the rest of your cash for renovations. then after a year or so, refinance and eliminate your PMI.

Re: 100% Financing - What are your thoughts?

we are doing this with the house we are buying since we havent sold our co op yet. We are doing a 80/20 no pmi. We hope to pay off the 20 as soon as we sell the co op so it is short term loan. We did have to put 5k as a deposit when we signed the contract.

Re: 100% Financing - What are your thoughts?

With the rate you are getting on the second, I think you would be crazy not to do the 80/20. Even 4 years ago, I paid 8 1/4 on my 15% loan. That is a great deal.

Re: 100% Financing - What are your thoughts?

Who is the bank/broker you are using? Those are excellent rates.