100 Percent Financing Requires Good Income, Credit
by Peter Boutell, Santa Cruz Sentinel
March 10, 2002

To obtain a home loan, there are three key areas that will be scrutinized by the lender: the borrower’s income, cash available and credit history. Of course, the lender will want to have a good look at the property, too.

The ideal borrower will have lots of income, a steady job for at least the past two years, ample cash and an impeccable credit history, with little debt. These borrowers qualify for the best interest rates.

The good news is it is not necessary to attain these standards in all three areas to buy a home. In general, if one area is weak, the other two will have to make up for the shortfall. In these cases, the borrower likely will be paying a higher interest rate.

For example, a borrower who does not have adequate income to qualify for a home loan may obtain a loan by obtaining a so-called "EZ qualifier" loan that does not ask questions about income or job stability. To compensate, the best EZ qualifier loans (the ones with the best rates) will require a borrower to have an excellent credit history and a down payment of at least 20 percent.

The fixed-interest rates for this type of financing may be ˝ to 1 percent above the best rates available. For a $300,000 loan, this translates to a premium of up to $200 per month.

Alternatively, many prospective home buyers have good jobs, earn a lot of money, pay their bills on time but, by the end of the month, have nothing to show for it. Fortunately, lenders have come to the realization that we are a nation of spenders, not savers and have determined that under certain circumstances a down payment will not be a requirement.

These loans that do not require a down payment typically are set up as a first mortgage for 80 percent of the sales price and a second mortgage for the remaining 20 percent of the sales price. Again, the interest rates are going to be higher for this type of financing.

To qualify for the best 100 percent financing, borrowers usually need to have solid income and good credit. But some loans are available to borrowers with less than stellar credit and as EZ qualifier loans.

This type of financing is often only available through sub-prime lenders. Although sub-prime loans are typically for 30 years, they typically are only fixed for the first two or three years. After that initial period the rates will jump up as they roll into an adjustable rate for the remaining 27 or 28 years. In addition, these loans will often carry prepayment penalties for the first two or three years.

To take this type of financing one step further, there are some loan programs that will actually loan more than 100 percent of the sales price. These loans can go to 103 percent. The extra 3 percent would cover the closing costs.