100% Financing gets Tougher

I remember when I purchased my last home. 100% financing, no doc loan, seller payed my closing costs, and I even talked the appraiser into cutting me a deal on POC charges. Did I mention, no PMI?That was the beauty of 2006. The last time that I checked, it’s now 2008, and the tables have turned. The terms for getting 100% financing in today’s market are quickly moving from tough to nearly impossible. Unfortunately for us, the loan that I described above doesn’t even exist anymore. For many people, especially first time buyers, this is sometimes the only way for them to purchase. Closing costs add up quick when financing a property and this often times will wipe the buyer out while trying to maintain the required reserves.

I’m currently working a deal with 100% financing and assisting the buyer as a sub agent of the seller. After discussion with the buyers lender, we were off to a good start. This is an “as-is” sale and the buyer opted not to do any inspections. Everything looks straight forward, right? After the appraisal was done I received a call from the lender who explained to me that the appraiser had noted a foundation issue on his appraisal. This was a first for me. You will encounter this type of “appraisal inspection” with FHA and VA loans, although not as common with a traditional loan. To make a long story short, we have went from contractors, to engineers, and back to contractors, only for the bank to tell us to get everything fixed. Why is this? The answer is 100% financing. The bank is simply covering themselves due to the lack of faith in the buyer being able to financially fix a problem in the future. See that’s the thing….they view all of the 100% deals as being extremely high risk. This may not always be the case. I have known many savvy people, including myself in the above mentioned scenario, that purchase this way only to keep their hard earned money in their pocket. That way, when the foundation caves in, you have the dough to fix it. I remember a market when you could borrow someone else’s money while keeping yours in the bank, only to turn around and make more money off of the borrowed money. Hmmmm……sounds good, doesn’t it? Unfortunately, it’s one of the main reasons the economy is in turmoil. Yes, speculation can lead to inflation. Combine this with most people living off credit cards and you get a nation that is living off of borrowed money. Maybe we need the banks to get tougher on us. What do you think? Will it help us start spending our money instead of someone else’s?

Is anyone out there?