ForeclosuresMass - ForeclosuresMass Monthly - Interview With The Expert

100% Financing - Is It Right For You?
An interview with Trish Signet, Loan Officer, Summit Mortgage

Thinking about buying an investment property but not sure if you can come up with the down payment? You may want to consider 100% financing. We sat down with Trish Signet, Loan Officer with Summit Mortgage, to understand what's involved in this creative financing approach.

ForeclosuresMass: Trish, thanks so much for taking the time to speak with us. In a nutshell, what is 100% financing and how does it work?

Trish Signet: The concept is simple: It's a mortgage with no down payment. The typical arrangement is to have a first mortgage of 80% of the purchase price, and then a second (also known as a piggy back loan), for the remaining 20%.

So for example, if the purchase price is $400,000, under a 100% financing scenario, the first mortgage would be $320,000, and the second mortgage would be $80,000. There would be two separate mortgages recorded on the property, and you would make two separate mortgage payments.

* Next 37 17 investors only!

TS: Almost always. The second mortgage is subordinate to the first - meaning that if there's a default and subsequent foreclosure, the holder of the second mortgage is second in line behind the first. That makes the second mortgage riskier, and as a result, most lenders are going to want to hold both pieces.

FM: So what's the advantage of this approach? After all, if the same lender holds two mortgages on the same property, from the same borrower, why not just provide one 100% loan?

TS: Good question. The biggest reason is that loans over 80% typically require private mortgage insurance (PMI). This can cost as much as 1% of the mortgage value over a 12 month period, so it's significant. By breaking it into two pieces, PMI is avoided, reducing the cost to the borrower and making it easier for the lender to package and resell the loan.

TS: Absolutely. In general, if you don't put any money down, you're going to pay a higher rate. That's part of your cost for getting to keep more cash in your pocket.

FM: Is it harder to qualify for 100% financing than for a conventional mortgage?

TS: It's a little tougher than a typical loan, but not impossible. You certainly can't have bad credit and expect to finance 100% of the loan, but you don't need to be perfect either. You just have to remember that in this scenario, the lender is taking a bigger risk. That translates into both a higher interest rate and closer scrutiny of the borrower.

TS: For a long time they didn't, and historically, putting 20% down was the standard. But times have changed. Interest rates are up, property values are up, and we're not as good at saving as our parents were. Lenders needed to get creative in order to expand the pool of potential borrowers. Remember, they don't make money unless they lend money, so although there's more risk involved with 100% financing, it also opens the door to many more customers.

TS: As with most investment decisions, it depends on your particular situation.

If you have limited cash, or you want to have money in the bank after the closing, then 100% financing may be a good idea. After all, any time you buy a property there are immediate expenses that go along with it. Even if it means going to Home Depot to buy a few garbage cans, you'll need some cash left over to get set up.

But keep in mind that with 100% of the mortgage financed, your monthly payments will be higher. So before jumping into this, make sure you've run the numbers and have a good handle on your cash flow and expenses.

TS: 100% financing is a viable option for many people. If you have the cash flow and discipline to make the numbers work, and don't mind the added complication of managing multiple mortgages, it's a very reasonable way to invest in a property while keeping excess cash in the bank.

Trish Signet, Loan Officer, Summit Mortgage. With over 10 years experience in the mortgage business, Trish works with each and every client to identify the mortgage financing options that are best suited for both their short and long term financial goals. She may be reached at 781-541-6410, tsignet@summitmortgage.com or online at Summit Mortgage.

Did you like this article? You May Also Like:

	Feature Article: Three Common Mistakes New Investors Make - And How To Avoid Them Sheila Farragher-Gemma, ForeclosuresMass, Corp. Success in real estate investing requires a commitment to keeping emotions out of the picture. Anyone who has plunked down hard-earned savings or leveraged their good credit to fund a real estate investment...
	Investor Interview: The Reason Why I Do This! Michael Ouellette For Mike Ouellette, making money isn't the only answer, and it can be one of the biggest mistakes investors make when getting into the foreclosure market...
	Feature Article: Three Steps to Rebuilding Your Credit After Foreclosure Stephen R. Elias, Attorney Gone are the days when rebuilding one's credit history after going through bankruptcy or foreclosure was straightforward. With the crash of the sub-prime lending market, consumers are under intense scrutiny when applying for mortgages and credit cards, which means rebuilding credit can now take three to five years - or longer!. In his article, bankruptcy attorney and author Stephen R. Elias provides three key steps that you can pass on to your clients who need advice on how to recover from foreclosure.
	Finance Corner: A Good Fit: Real Estate in Your Investment Portfolio Christopher P. Gullotti, MSFP Financial planners hear comments about real estate investments frequently. Does investing in real estate truly offer financial opportunities? Many times yes, but not always for the reasons people think...
	Success Strategies: The Top Three Fears That Prevent You From Making that First Deal Kelle Sparta If you've yet to close on your first deal, it could be that something is blocking you. According to author, trainer, and coach Kelle Sparta, people usually have the following fears when it comes to real estate investing: they think they don't have enough information, they're afraid they'll lose money, or they believe they aren't the real estate investing type. Read her article to find out how to conquer these common, yet debilitating, fears!
	Nothing Succeeds Like Success: An interview with full time investor, Derek Ebrecht Derek Ebrecht Derek Ebrecht's got focus, drive and insight into what makes for successful investing. He's also got several profitable deals under his belt, despite his relative newness to the foreclosures field. We spent some time with Derek this month to understand the reasons behind his success.
	Interview With The Expert: Richard Cohen Richard Cohen, Negotiation Coach and Consultant For any real estate investor, negotiation is a part of everyday life. Whether with tenants, contractors or homeowners, any time you are trying to influence someone else, you are negotiating. This month we speak with Richard Cohen, a negotiation coach, consultant and real estate investor, to understand more about this critical skill...
	Feature Article: How To Protect Yourself In A Lease Purchase Deal James A. Gage Lease purchasing is when a potential seller transfers control of and rents a property to a potential buyer, until the buyer exercises his or her option to purchase the property. The benefits to both seller and buyer can be significant, however there are any number of factors which can derail the deal along the way. Jim Gage offers 11 practical tips for keeping things on track to the finish line.
	Feature Article: 1031 Exchanges - The Smart Way To Buy Investment Property Jack Cutone 1031 tax deferred exchanges are an IRS approved method for selling property and reinvesting in another property, all the while deferring federal (and most state) capital gains taxes. It's a terrific arrangement, but not without it's complications. 1031 expert Jack Cutone explains how it works and, as importantly, what's required to make it happen...
	Feature Article: Five Strategies for Successfully Negotiating Short Sales Elizabeth Weintraub As any seasoned investor can attest, dealing with banks on short sales requires a large bottle of aspirin and the wisdom of Solomon. Real estate broker-associate Elizabeth Weintraub gives you the low-down on how to successfully deal with banks - everything from dealing with confrontational bank agents and writing contracts to proving to the bank why you're the best buyer.