Getting a 100% mortgage loan with bad credit might seem impossible, but it is no dream. And while there are some compromises to the deal, it gives everyone a chance to buy their ideal home.
While lenders will always encourage those seeking a mortgage to have a down payment ready as part of their application, it is not always possible to do so. A down payment can translate to perhaps $25,000, and when bad credit is a factor that limp sum can be very hard to gather together. But the good news is that 100% mortgage loans with bad credit are available from some lenders.
It is always a challenge to secure mortgage approval despite bad credit, so to secure the total purchase price of a home is understandably difficult. But thanks to sub prime lenders, there is a possibility to not just get the purchase price, but a sufficient sum to cover the extra legal and administrative costs too.
So, by getting 100% bad credit mortgage loans approved, everything can be taken care of from one fund. This can be a very convincing aspect for borrowers with low credit scores seeking funds, knowing that traditional lenders are set to turn their applications down.
The Advantages of a 100% Mortgage
It might seem that applying for such loans really only adds to the burden of debt. But the fact is that there are real advantages to seeking 100% mortgage loans with bad credit.
The first and most obvious one is that there is no need to get a down payment together. In most cases, mortgage approval despite bad credit is secured largely on this aspect. But the truth is it can be a huge drain on the resources of individuals who are already handling the challenges of a bad credit rating. Getting $20,000 or $30,000 together is not easy, even at the best of times.
A second advantage is that the need to pay private mortgage insurance is lifted. This is good news because after getting a 100% bad credit mortgage loan approval, the repayments will be significant enough without having to fork out for something that offers no security at all to the borrower, just the lender.
The Disadvantages of a 100% Mortgage
But there are negatives to taking on 100% mortgage loans with bad credit, not least the size of the repayments to be made. Normally, a down payment would reduce the size of the mortgage required, so the repayments would be lessened too, but in this case the total sum needs to be repaid over the lifetime of the mortgage.
This can translate to a couple of hundred dollars per month, which might otherwise is used elsewhere. This can be countered by extending the life of the loan but, as with all mortgage approvals despite bad credit, that means the overall interest paid increases. So, instead of repaying a $250,000, for example, the borrower might repay $400,000 over 40 years.
Bad credit is the key element, with it automatically meaning a higher interest rate charged. With sub prime lenders, who are generally more open to accepting the risks associated with lending to bad credit borrowers, the extra fees can also be rather high. So, while 100% bad credit mortgage loan approval means a home can be bought, the pressures are high.
The overall cost of a 100% mortgage loan with bad credit can be very high, which is why there are some options available. One of the more popular is an 80-20 mortgage loan, where 20% of the property is covered by a piggyback mortgage. This can help with getting mortgage approval despite bad credit because the repayment structure on 80% is more manageable.
The piggybank mortgage, meanwhile, is available at a higher rate of interest, thereby increasing profits on lenders compared to 100% bad credit mortgage loan approval.
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