The biggest challenge for many home hunters is not necessarily getting their mortgage approved, but is raising the down payment that is usually required.
This lump sum is normally in the tens of thousands of dollars, and it typically takes a considerable amount of time to save it up.
But with the availability of mortgage loans with no down payment, that challenge can be sidestepped.
Understandably, 100% mortgage financing is attractive, especially to bad credit borrowers who perhaps have little means to save large sums of money.
However, there are issues that need to be considered, not least the negative aspects of greater debt and higher monthly repayments.
There are also options that anyone seeking mortgage approval with bad credit should look into.
No Down Payment Options When it comes to securing mortgage loans with no down payment, there is a selection of options to choose from.
As is always the case, the best one depends greatly on your particular situation, but they all offer the borrower a chance to better manage their debt from the off.
The best known is 100% mortgage financing, which as its name implies, provides all of the funding necessary to purchase the property desired.
The advantage is obviously that there is no need to come up with any large sum in the form of a down payment, but this also means that debt is higher, interest is more, and the level of affordability is less.
A more popular option is the 80-20 mortgage.
The numbers relate to the breakdown of the actual debt, with two mortgage providers often involved - one carrying the 80% mortgage; the other the 20% mortgage.
It can be complex, but can also be useful when seeking mortgage approval with bad credit.
Who Qualifies? So, can anyone qualify for mortgage loans with no down payment? The fast answer to that question is no.
The sums of money involved in mortgages mean that the extra 10% debt that would normally have been claimed by a down payment, can be the difference between what is affordable and not.
This in turn means that mortgage providers are careful about who they grant 100% mortgage financing to.
Their criteria include the applicant being clean of bankruptcies or foreclosures for a period of between 2 and 4 years (depending on the lender).
Subprime lenders are more willing to accept the risk, and as well as offering more affordable terms to those seeking mortgage approval with bad credit, they are willing to consider applicants who have been clean of bankruptcy forjust 12 months.
Other Factors To Consider There are a few other considerations before deciding on where and if to apply for a mortgage loan with no down payment.
For example, there are conditions relating to the acceptable bad credit scores - normally, a score of 600 is the lowest, though subprime lenders usually accept 560 for their 80-20 mortgages.
Even if there is no requirement for a down payment, the lender wants to be sure of the financial strength of the applicant.
For this reason, they expect the applicant to have at least 6 months cash reserves in case the borrower loses their source of income, for example.
When it comes to 100% mortgage financing, the interest rate structure is also important, and an ARM is arguably the best option.
It allows for a higher fixed rate interest repayment for an initial period of time (perhaps 3 years), but makes refinancing much easier.
This makes it ideal for those seeking mortgage approval with bad credit.