Financing

What does 100 financing mean?

100 financing mean

Type of financing that does not require any down payment to be made for the financing of a particular property. Unlike some program like federal housing administration that requires 3.5% down payment of the price of the house, there are some program that gives hundred percent financing with no down payments.

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The United States Department of Agriculture that is USDA provides 100 percent financing to some borrowers who want to build house in the rural and some specific areas. To get eligible for this program, their financial requirements have to be met that is you must have been a very low income earner or a low income earner in which your income should be less than 50% or 50% to 80% respectively.

What does 100 financing mean?

There are risk involved in 100 percent financing so when a seller or a lender gives 100 percent financing on a property, you should be careful to analyse the risk if it worth it or you just want to lose your money. There is a chance of losing the property if the borrower should default on the loan and also wasting money on another property. The mortgage payment on this is very high so also is the interest rate. The charges on the defaults are usually high although this does not require a collateral but it does require a guarantor to sign a documents or undertaking that if the borrower does not pay, he would repay the debt on his or her behalf.

100 financing definition

100 percent does have advantages and disadvantages to both buyers and the seller. The buyer has the opportunity of using the property for a moment of time before financing another property if he should default on the first property like in the case of car, should the borrower default on the loan, the lender can collect his car back and the borrower can go finance another car which makes him to be able to drive another new car but the disadvantage of this is that the borrower does lose more money than expected and also tampers and reduces his credit score.

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The lender on the other gains more money from the property being lent out to the borrower because the higher the down payment, the lower the interest rate the mortgage payment but since its 100 percent financing and does not require a down payment, definitely the interest rate the mortgage payment get higher giving the lender opportunity of getting higher money and can also collect the property back should the borrower default on the loan and this gives the lender opportunity to give the property out to another lender for example, if a lender gives a house out to a borrower, and they signed a promissory note consisting of the amount to be paid as mortgage payment and the interest and the consequences of the defaults.

If the house is given out at the rate of $45,000 but the borrower was able to pay $35,000 before the time of default and defaulted by not able to pay the remaining $10,000, the lender can have the house back and give it to another borrower at the rate of $45,000 again, he keeps on gaining his money on the property till a borrower is able to get the money paid. The lender can also suffer a loss if the property is a liability like car that loses value quickly.

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For example, if a car dealer loan a borrower a car at the rate of $45,000 but the borrower was able to pay $25,000 at default after two years, the car has a great chance of its value being down, if the lender should have the car back, certainly, he would have to put the car out at a price very low which might not meet up with the initial price of the car making him has a lost. Both buyers and sellers suffer loss depending on how situations turns out and the type of property being finance. Hundred percent housing can be interesting to finance but things get wary if the borrower should default on the loan because certainly he is losing the house and also the money spent on the house either the tax, mortgage payment, addition and improvement expenses, or the interest rate, everything are lost.

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Harish Yadav

Finance and market analyst and chief writer on howtofinance. Passionate to read books and articles on marketing and accounting. Also edits other articles and publish them here.

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