What is a 100% Mortgage—4 Pros and Cons

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Are you planning to buy a home but struggling to save enough money for a down payment? A 100% mortgage may sound tempting. In this post, we'll discover what a 100% mortgage is and discuss the pros and cons of choosing this financing option. Let's dig in! 

What is a 100% Mortgage? 

A 100% mortgage is a home loan where the borrower finances the total cost of the property they plan to purchase—without making any down payment. In other words, the borrower gets a loan for 100% of the home's value and doesn't need to put any money down upfront. 

(In contrast, a more traditional mortgage, such as a conventional loan, generally requires a buyer to make a down payment of about 20% of the home's value. Then, when financing, a borrower only needs a loan for 80% of a home's value.) 

100% mortgages appeal to those who have a steady job and can afford monthly mortgage payments—but don't have significant savings. This type of mortgage financing also appeals to young, first-time home buyers who are excited to start building equity and secure a solid financial future.  

The Pros and Cons of a 100% Financed Mortgage 

Considering the pros and cons is key to making wise financial decisions. Let's find out if a 100% mortgage is right for you! 

Pros of a 100% Mortgage 

There's no need for a down payment. As discussed above, one of the most appealing things about a 100% mortgage is that you can buy a house without putting any money down! So, no need to stress if you don't have the cash to spare. 

It's easy to get approved with fair credit. No downpayment means that you can finance the entire cost of the property—as long as your credit is fair or better. Generally, you need at least a 580 credit score to qualify for a 100% mortgage. 

You can enter the property market sooner. If you're struggling to save a down payment and worry you'll never get there, a 100% mortgage gives you an edge in the property market. In other words, you don't have to let your dream home pass you by while you pinch pennies. 

Start building equity now. When you purchase a home, you begin to build equity, which stands for the portion of the property you own. Equity is a valuable asset that has the potential to grow in value as the property does. Building equity is a smart financial move that enables you to invest in bigger and better financial deals. 

Cons of a 100% Mortgage 

You risk negative equity. If the property market experiences a recession or downturn, homeowners who have financed 100% of their mortgage loan are at a higher risk of having negative equity. This situation arises when the value of your home is less than what you owe on the mortgage—leaving you with a net loss. 

100% mortgages have high interest rates. Because 100% mortgages are riskier for lenders, they often come with higher interest rates than traditional mortgages. As a result, you might end up paying more money each month than you initially expected.  

There are limited options. When it comes to 100% mortgages, it's important to remember that you may not have access to as wide a range of options as you would with a traditional mortgage plan. In fact, not all lenders offer 100% mortgages, so your choices are already limited. Shopping around for the right lender is always important, but choosing a 100% mortgage will narrow your options. 

100% mortgages have high monthly payments. When you opt for a 100% mortgage, it means that you are borrowing the entire amount required to purchase your home instead of 80% or so. While this provides you with the necessary funds, it also means that your mortgage payment each month will be higher than those of a traditional mortgage. 

Is a 100% Mortgage Right for You? 

If you're considering a 100% mortgage, make sure your finances are stable and get a clear understanding of the risks involved. 

To learn more about 100% mortgages, fill out the 'Get Started' form on our website's homepage or click here to contact a mortgage professional directly.  

Our experts will be happy to help you make a smart decision about your mortgage options and future!