Complete mortgages and special ones for first time home buyers

What is a 100% mortgage and is it a good deal?

In a 100% mortgage the buyer puts nothing down and mortgages the full price of the home. Depending upon the lender, the finances behind this type of mortgage can be an ARM for the first few years, or an 80-20 mortgage, which is two loans at different rates, or it can be any type of creative financing agreement. In order to determine if this is a good deal for you, you need to be familiar with the precise type of financing.

In general the biggest problem with 100% mortgages is when the loan is the type where either the total amount becomes due and the owner must refinance or the mortgage payments increase due to a rise in interest rates. At that point the home buyer may find out that he or she has little or no equity in the house because all the mortgage payments have gone against the interest of the loan and little or nothing has gone against the loan principle.

As long as the home is worth more than the original mortgage amount, refinancing may be possible, and, depending on interest rates, expensive. However, if the property is now worth less than what it originally sold for, a homeowner with little or no equity may find it impossible to obtain a loan that will pay back the amount due on the 100% mortgage without a very sizeable down payment.

Are there special mortgages for first-time home buyers?

Yes. Many lenders now offer affordable mortgage options for the first-time home buyer. Some states and certain cities have programs that attract the first-time home buyer with sponsored assistance such as reduced closing costs, lower down payments, and assistance in dealing with debt.

An example is the City of Chicago that holds seminars for firsttime home buyers to assist them in obtaining these special mortgages and financial backing by the city. The City of Chicago’s Department of Housing has tools to assist the first-time home buyer from deciding what to buy to actually getting a mortgage. It has partnered with nationally certified lenders in offering two programs, City Mortgage and TaxSmart, to provide financial benefits to eligible buyers. Other cities are helping first-time home buyers in the same type of programs.

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