There is a general view that getting a 100% financed bad credit mortgage loan is the simplest way to buy your own home. But, just like every other loan, there are pros and cons associated with the option.
What should be kept in mind is that, as far as those with low credit scores are concerned, 100% mortgage loans, with bad credit ratings already factored into the calculations, make buying a home possible despite existing financial difficulties. Getting approval on these loans is not as complicated as many would think, especially with the more accommodating lending policies that have emerged in recent years.
Still, before it is possible to get mortgage loan approval despite bad credit, it is important to look at what the particular pros and cons are, and what the expected terms of such a loan are.
Advantages of a 100% Mortgage
The normal way to buy a home is to pay a down payment, and borrow the remaining amount in a mortgage, perhaps 80% of 90% of the actual property value. One advantage of getting a 100% financed bad credit mortgage loan is that no down payment is required.
This may seem counter productive, since the mortgage sum is the maximum value required, making monthly repayments will be higher. But with no down payment required, the borrower does not need to wait to raise the funds to pay the ,000 or ,000 needed. So, the deal can be done more quickly.
Getting a 100% mortgage loan with bad credit is not a simple task either, but since the expectation of a down payment, which usually figures in application assessments, is not there, the applicant sees one big worry removed. Of course, displaying the discipline required to save the money can help get mortgage loan approval despite bad credit, but it offers no guarantee.
Disadvantages of a 100% Mortgage
The principal negative to getting a 100% financed bad credit mortgage loan is the size of the debt that is taken on. A home costing 0,000, is going to come with a heavy monthly repayment, even over 30 years. Reducing that by even 10% through a down payment would mean savings of 0 or 0 per month.
There is also a question over the value of home equity when a 100% mortgage loan with bad credit is used to buy the property. Remember that by borrowing 100% of the required sum, all of the home is effective owned by the mortgage lender. However, an 80% mortgage would mean 20% equity is in the possession of the borrower.
Also, the repayment structure of this kind of mortgage is more complicated. Often, borrowers will face an adjustable interest rate for the first few years, which will then go up. Of course, a fixed rate is easier to budget for.
So, mortgage loan approval, despite bad credit, on 100% of the purchase price is not always perfect.
Key Terms of a 100% Mortgage
As tempting as it is to believe that a 100% financed bad credit mortgage loan is the simple answer to your problems, they can prove extremely expensive. The fact is that with bad credit a factor, the interest rate will be quite high, so unless some wisdom is applied in the calculations, just keeping up with repayments on the 100% mortgage loan with bad credit could be a debilitating debt.
What is more, sub prime lenders are the experts that handle bad credit borrowers in debts of this nature, and they are famed for their higher rates and fees. However, when seeking mortgage loan approval despite bad credit, at least they make a home purchase possible.