Why Is 100% Financing So Hard to Find?

January 18, 2007 No Comments »

A little less than six months ago, you could finance a home with no money down with few restrictions.

Even if you had a low credit score, no assets, and a relatively soft/short employment history, you could still get a mortgage without coming out of pocket.

But times have quickly changed. These days you’ll need to spend a lot of time shopping for 100% financing even if your the most well-qualified borrower out there. You may even fail to find a single bank or lender willing to offer you financing without a down payment.

The reason is because many of the banks and mortgage lenders offering 100% financing were losing money when homeowner after homeowner failed to make even the first payment, leaving the bank with the keys and a vacant property.

This scenario seemed to be so common that many banks and lenders offering 100% financing closed down, or simply seized offering the loan program to avoid shutting their doors.

It appears many homeowners were willing to buy properties with zero down in the hopes of turning a quick profit, but as home prices slid, borrowers simply walked away with little more than a credit ding.

Of course, it’s only a matter of time before 100% financing returns, though with higher mortgage rates and mortgage insurance that protects banks and lenders in the case of a default or foreclosure.

While it may not be as easy to qualify as its predecessor, the loan program should stick around a bit longer with protections in place for the banks and lenders offering it.

Just don’t be surprised if the lending environment you were used to just last season is a lot less familiar.

It seems the gig is up for loose lending, and borrowers will be expected to show a lot more to lenders in order to qualify. Personally, I think that’s a good thing if we want to avoid a complete meltdown.


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