Financing is one of the fundamental aspects when buying a home. Generally, banks offer mortgage loans that cover up to 80% of the property value, which requires savings to cover the remaining 20%. When you do not have that cushion, it is possible to obtain a 100% mortgage, but the requirements are much higher.
What is a 100% mortgage and its requirements?
These types of mortgage loans are uncommon. In fact, not all financial institutions offer them. 100% mortgages (without guarantee) finance the entire value of the home; however, in return, they entail a whole series of requirements for those who request them:
• Interest may be slightly higher since the bank assumes a higher risk. The maximum financing term, 30 years, does not vary from conventional mortgages.
• Banks usually require the contracting of additional products, such as insurance.
• Have a solvent profile, that is, stable work (indefinite contract and a long career). Banks can also request you have a particular saving capacity or a specific amount of assets.
• An appraisal value higher than the purchase price. It will mean getting the home at a lower price than the market price.
How to get a 100% mortgage
100% mortgages will be more accessible with a guarantee, usually another home. However, it is also possible to obtain them without them. There are three ways:
• Acquire a home from the bank: it is the easiest way to get 100% mortgages. The banks have a fund of homes from foreclosures they want to release. Therefore, they usually offer more advantageous conditions on mortgage loans.
• Acquire homes from Sareb: the “bad bank” collaborated with financial institutions to offer mortgages at favourable conditions and get rid of their housing stock. Now they are also listed through real estate agencies that manage the granting of mortgage loans with banks.
• Request the services of financial brokers: they are intermediaries in charge of managing the mortgage in the most advantageous conditions for their clients. However, keep in mind that they charge a commission for their services.
Advantages and disadvantages of 100% mortgages
These types of mortgages, a priori, are very tempting. Nevertheless, we must not forget they also offer some drawbacks. Their great advantage is that they allow buying a home when you do not have savings to finance that initial 20% that banks usually require. Even if you have a small financial cushion, they allow you not to lose capital with the acquisition of the home.
As for the disadvantages, the indebtedness will be higher. In addition, some expenses will have to be assumed and make the operation more expensive, such as higher interest rates or the broker commission. Also, there will be expenses derived from the purchase operation. These costs can suppose between 10% and 12% of the total value.
Find a home according to your budget
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