No Down Payment Required: Who benefits from this practice and who suffers?

Today there are many 100 percent financing programs available. What this means is that the lender is willing to finance 100 percent of the purchase price of the property and you are not required to provide a down payment and generally are not required to pay “points.”

A “point,” in mortgage language, means 1 percent of the selling price of the property. Technically points are a prepayment of interest on the mortgage. By paying points upfront (in other words, by prepaying part of the interest on the loan) a borrower can lower the interest rate on the loan. The more points the borrower is willing to pay, the lower the interest rate on the loan would be.

Today there are many 100 percent loans available. There are qualifications and limits to most of them. Some limit the total amount of the loan if there is no down payment, and others require residency within a state, or they may require that the property be own-occupied or that the borrower have a certain minimum credit score to qualify.

Many no down payment loans actually do require a certain amount of the borrower’s cash in the deal in the form of paying closing costs or other fees.

There are even programs available that are better than 100 percent financing – there are several 103 percent financing programs that will not only finance 100 percent of the cost of a property but will also finance your closing costs as well.

None of these programs are free. You can expect to pay higher interest rates for virtually all of these programs, but for those who have relatively good credit it is nice to know that programs such as these exist.