Pros and Cons Of 100% Financing

If you are looking to purchase a new home you have probably found that there are an abundance of financing options for homebuyers seeking 100% financing. If you have equity in your current home, or if you have a little money saved up you may be weighing whether to put money down on the new house, or to use it for other purposes such as paying for a childs education, investing it, etc.

If you find yourself in this position there are going to be tradeoffs regardless of what you decide to do. Here are a few of the pro's and cons to taking out 100% financing on a home.

There are several pros and cons to financing 100% of your new home versus putting money down. However, most pros and cons are going to depend on each and every consumers particular situations. On pro for one hundred percent financing is that it allows you to hold onto whatever money you have saved and keep it for a rainy day, for unexpected home repairs, tough times, and other emergencies. By using the little money you have put away in your savings account, checking account or other investment accounts for a down payment on your home, you are tying your liquid assets up into the equity of your home which may not always be easily accessible if an emergency arises. Therefore, 100 percent financing can allow you to hold onto your money and use that for emergencies or to put back into your house as needed.

One Con of 100% financing is that the rates will be higher than if you put money down.

Since the interest rates are higher for the 100% financing, make sure that you are comfortable with the level of the monthly payment.

From an investor's point of view, the return on investment with 100% financing is much greater when the property increases in value than if the investor puts a large down payment.

Being aware of your local real-estate market is essential. If the home value drops below what the mortgage is owed, this could cause more money to be owed than the home is worth. It could become harder then to sell your home if you are in that particular situation. Your real-estate agent along with your mortgage professional will be able to advise you on these situations.

A 100% financing loan for your home should depend on your needs and situation.

100% financing is a viable option in a flat real estate market if you plan on staying in the property for at least several years or more.

100% financing can we prudent when home prices are increasing. It gives you an enormous amount of leverage. The leverage can cause a problem if home prices decrease because it will be difficult to refinance with no equity in the property.

A lot of first time home buyers choose 100% financing. My biggest worry, is that buyers are getting into homes that they can't afford. Please seek the advice of a licensed mortgage professional to make sure that you can afford the house that your purchasing.

» DISCLAIMER: The information contained in this article on 'Pros and Cons Of 100% Financing' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.