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100% FHA Financing Doesn't Exist and Other Truths About Mortgage Programs

Well, I see it again, and after trying to bite my tongue as long as I can, I have to lay the record straight.

100% FHA Financing DOES NOT EXIST. Yes, it's true. It doesn't exist, never has, and never will. The fact is that FHA requires a minimum of 3% down here in AZ (It can be a little less in other states but 3% is a nice safe number to remember). So the maximum financing that can be delivered to a client on an FHA loan is 97%.

So, why do people advertise 100% financing? Because it's sexy. What they should be advertising (at least for the time being) is $0 Out of Pocket FHA Loans Available. Is that possible? Yes it is. Is it 100% financing? No.

So what's the difference? Well, the difference is that FHA does allow for that 3% required down payment to be a gift. And that gift can be from anyone. Including the seller through FHA approved Down Payment Assistance Programs (at least until October 1st). So, if the seller agrees to pay for this assistance AND agrees to pay the buyers closing costs, then yes, indeed, a buyer can buy a house with $0 out of pocket.

Now, the comment I'll hear is 'all you're talking about is semantics'. Really? Try putting a sign rider up offering '100% FHA Financing'. In most states, that will get you a phone call from the government entity that regulates mortgage advertising. Also, if you're a realtor and you have that sign on your listing, you better hope that you're really good at explaining yourself because your seller might be a wee little upset that s/he all of a sudden has to contribute 3% more to the transaction to make this '100% Financing' program work.

While I'm at it, 102% Financing through USDA doesn't exist either. It's a 100% program that works in rural areas. There is a 2% funding fee for these loans which can be financed into the loan (which is where people get 102%). However, many people just advertise this as 102% financing as though that extra 2% can be used to pay for closing costs, get a little cash back at close, etc. In reality, you'll still have the same closing costs, the 2% is a contribution to the program and the Loan to Value is 100%. Oh by the way, there are some very restrictive geographic locations (especially here in the Phoenix Metropolitan Area) as well as some income limitations that make this a program that is great for the right borrower looking to buy the right house (of which there aren't many in Phoenix).

I could go on and on about deceptive advertising (don't get me started on No Cost Loans), but if you're a real estate agent and want straight talk and solid education about different mortgage programs, then contact me. If you want catchy headlines promising programs that have asterisks and start off with "Well, technically it's not 100% financing", just wait 15 minutes and I'm sure we'll all see another one.

Posted by Eric Frederick on 08/11/2008 06:50 PM

Comments (44)

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44 Comments on 100% FHA Financing Doesn't Exist and Other Truths About Mortgage Programs

AUG

2008

There are still some mortgage companies using a little deceptive ways of advertising.

Eric... I think we would never run out of blog topics if we could expose all of the puffery, misleading ads and downright lies the Real Estate & Lending Industry pass off as creative marketing verbeage.

It makes me sad, and very angry.

I forgot to mention embarrassed.

Great post Eric. I agree. People see these false advertisements and then think YOU are lying when you tell them that it doesn't exist. The loan officers doing this are the ones giving the rest of us a bad name.

As a Lender it makes me sick to see this is still out there ... but it is. One thing w.FHA is that the borrower still has to come to the table with atleast $500 out their pocket.

Great post Eric.

AUG

2008

Grants and bonds are offered in many states and many are deferred loans. They are typically forgiven in 48-180 months. So, technically, it is 100% financing. Yes?

No. The Loan is still a 97% LTV. It is not costing the borrower any money to close. However though FHA states the borrower has to still have $500 of their money in the transaction. 100% Means no money down on the loan.

I have closed hundreds of these.... LTV is 97%, but CLTV is 100% through the deferred loan, which means 100% financing. I am not aware of any $500 requirement from FHA. We actually give deposit monies back at close if verified... The only thing they don't get back is POC items, which all are optional.

Appraisal/Credit - lender is not required to collect up front. This is per lender.

Hazard - can be paid at settlement

Termite and Home Inspection - not required, borrower's choice.

So, they can get in with no POC items and get their deposit back.

FHA still allows community 2nds and 2nd mortgages via mechanisms like the National Homebuyer Fund up to 105% CLTV; also available on MyCommunity and Flex loans. There are restrictions for declining markets that are really hammered, but up to 105% CLTV Finanincing "Zero Down, Zero out of pocket" programs are still available. The lender approval is tough and their are 3 layers of underwriting; 1st mort, 2nd mort and MI...but for those that have access to providing the options to buyers it is a great program.

Thia is from HUD:

Borrower must make a cash investment of 1% of the contract sales price, orsimply demonstrate the ability to make such investment (i.e., liquid or illiquid reserves such as cash, 401(k), stocks, CDs, etc.).

Down payment requirements can be low. In contrast to conventional mortgage products, which frequently require down payments of 10 percent or more of the purchase price of the home, single-family mortgages insured by FHA under Section 203(b) make it possible to reduce down payments to as little as 3 percent. This is because FHA insurance allows borrowers to finance approximately 97 percent of the value of their home purchase through their mortgage, in some cases.

I misspoke on the $500, that is on FannieMae My Community Programs.

So based on what you are saying, FHA allows a Forgivable 2nd to allow for a 100% CLTV. What are the parameters for the forgivable loan? Does it have to be paid back if the sale or refi with in so many years, etc.

I have just never heard of FHA allowing a 100% CLTV on their loans. Only 100% loan that FHA has is for Hurricane relief.

Thanks Rich. That is my point. While it is not 100% financing through FHA, it is still 100% financing....

Jason...check out the National Homebuyer Fund website and peruse some of the guidelines and options.

Thanks for the information and I take a look at it.

It depends on the bond or grant. Each one is different.

That is a good website. Also, many states offer these grants and bonds, too.

And Bob, you're making my point. FHA financing is only 97% period. Now, can grant programs, down payment assistance programs, etc. make up the difference, yes, of course. However, you simply cannot advertise '100% FHA Financing' as that doesn't exist.

Jason, many of the grant programs are area specific and not available everywhere. For instance, here in AZ, the City of Peoria currently has one of these running. Money is available, however, it's a 5-10 year silent 2nd which makes selling, refinancing, or transferring title a trigger that requires the grant money to be repaid. Most of these programs have some type of requirement like this.

There is no $500 requirement for FHA loans, although I think that point has been clarified. Borrowers can (and usually do) receive their earnest money deposit back if the seller concessions for closing costs do indeed cover the closing costs.

Yes, Rich, those programs do exist, but again, you're talking CLTV. I am not against advertising $0 Out of Pocket because that does in fact exist (in fact, that's what most of my marketing for purchases is geared towards). However, I am very much against advertising 100% FHA Financing (or 102% LTV USDA Programs for that matter) because it's simply a flat out lie.

Amy, Cory and Russ, thank you for stating exactly what my frustrations are. I spend an hour reeducating my clients about the real programs that are out there only to have them tell me they went with Joe Schmoe down the street who said he could get me 102% financing and cash back at closing.....Very frustrating....

Actually, they only require 2.25% down and UFMIP is financed, which could be up to 2.25% with new grid (scores between 500-599)... so FHA does finance 100% with current guidelines and UFMIP. FHA requires minimum funds of 3%, but .75% can go towards closing costs....

Bob, feel free to have your clients call me if they want straight talk about FHA mortgages.

You are correct, some states require only 2.25% down. UFMIP is financed, and it can be up to 2.25%, but that is on top of the mortgage amount (hence the fact that it is FINANCED). So, again (and if you read my original post again, this is clearly stated), using 3% to cover every state (I'm licensed nationwide, so I like to present as wide of a spectrum as I can so that I don't have to have asterisks or 'not really's' in my conversations with clients) means that FHA only allows 97% LTV financing (and since you want to be technical, some states actually allow up to 98.15% LTV).

You can continue to try and twist facts (which it's becoming clear you're very good at), but if you're so confident that 100% FHA financing exists, let's do a conference call with your local HUD office, your attorney general in your state, you and me and let them know that '100% FHA Financing' is what you're advertising. Once we have that conversation there will be one less competitor giving clients false, twisted information. And that means I won't have to reeducate quite as many clients. I am available tomorrow all day.

You are making the assumption I advertise 100% FHA financing. I don't. Read my blog. More bad info and assumptions. I am just stating the LTV is over 97%. And, yes, the LTV differs per state.

No, I don't assume that you're advertising anything. I don't really know anything about you. What I do know if you're very intent on making the argument that FHA does finance 100% (from your post above):

so FHA does finance 100% with current guidelines and UFMIP

So whether you're advertising this in the traditional sense of advertising or making comments on it on ActiveRain or telling clients that it exists, you're 'advertising' that FHA finances 100% which is just not true.

It is ironic to me that on a blog entry about mortgage programs that don't exist I've got a mortgage person arguing that they do in fact exist. Thank you very much for making my point for me.

bob... this is what you wrote.

"I have closed hundreds of these.... LTV is 97%, but CLTV is 100% through the deferred loan, which "means 100% financing.

Exactly.

97% through FHA and we can use MALP, DSELP, and many other programs to finance the down payment.

Also, those that do, could argue the other side. FHA does finance up to 98.15%, UFMIP is financed in the loan, and they have programs set up to correlate with FHA that well exceed 100%. So, I don't know. I am not saying they can or can not advertise 100% financing, but their LTV can hit 100%.

I am only saying they do finance more than 97%, so it not a lie and that is not the bottom line.

It would be easier if everyone advertised 0% down. You have an argument, however, there are always two sides on opinions... Honestly, I don't care and look at re-educating my borrowers as an opportunity to build relationships and trust with them.

Yes, I have closed hundreds of these and it is 100% financing. Since the 2nd is a deferred loan in many cases, it can be 100% financing. I did not say I did 100% FHA financing.

So no more Offer price minus 6% seller incentive purchase contracts?

Zack Alawi
Short Sale Negotiator
www.myrealpro.com
480-776-7291

Jason and Bob - I am with you! I have closed many an FHA deal at 100%... Add the numbers together any damn way you want to. If a borrower gets 3% from mom and dad, which is ALLOWABLE, 2.25% of that ( which is all that is REQUIRED for a down payment with FHA, - 3% must be in the deal, it adds up to 100% financing..... call it what you will but the numbers are in black and white.

And yes Zack, FHA still allows up to 6% seller help. Eric - I hate to call you out but you are WRONG my friend. Max financing on FHA loans is 97.75%. Learn that and you can maximize your MCAW to benefit the borrower. Sorry bro - I will tell someone all day long I can get them an FHA loan with NO MONEY down, as long as they have generous parents or a nice boss..... This is being creative and working within HUD guidelines.... NOT false advertising.

Go to the FHA forums and ask Jeff Belonger or Gerry Suarez, Jr. or any of the other FHA experts.... they know their stuff!

Open Mortgage, did you read the original post AT ALL? Because if you had, you would realize that my point is there is a difference between $0 money down and 100% financing. And the entire point is that we, as mortgage professionals, should be using the proper phrase (if your goal is to educate your borrowers and clients.) The simple fact, AGAIN is that 100% FHA Financing does not exist. FHA has not and will not write a standard mortgage at 100% financing.

And, well, hopefully you're only doing states in Maryland, because not every state allows 97.75%. Again, read the original post before you comment please.

I can get people no money down FHA loans all day every day as well, and they don't need to have generous parents or a nice boss to do it. I think your comment about a 'nice boss' followed up with being creative tells me most of what I need to know about your MO...

By the way, since I've not had a conversation with you, I would appreciate Eric or Mr. Frederick--not bro.

Zack, I'm not entirely sure what your question is. Seller incentive is an open phrase in many respects. Are you talking about closing costs only? Seller paid down payment assistance? A combination? Shoot me an email and I'd be happy to explain what programs are still out there and which ones are going away.

Bob, your ultimately going to disagree with me simply because you don't think it's a big deal. Six of one, half dozen of the other, right? Except it's not. There is a distinct way to properly categorize FHA Loans with the proper use of LTV and CLTV. But ultimately you're making my point for me, and I appreciate that.

OK Mr. Frederick - I'll give it to you. FHA does not offer 100% financing. I was completely out of line in suggesting that they do.

More wrong statements and assumptions.

You never even mention LTVs and CLTVs in your blog. You never mentioned deferred loans with government entities. If you are going to make an argument, you should be more clear.

I never stated 100% FHA financing.

1. You stated, "So the maximum financing that can be delivered to a client on an FHA loan is 97%." - This is untrue.

2. You stated, "So, why do people advertise 100% financing?"

Answer: Because there are resources.

3. You stated, "And that gift can be from anyone. Including the seller through FHA approved Down Payment Assistance Programs (at least until October 1st)."

Answer: There are many Bonds and Grants that offer deferred loans that equate to 100% financing, which you never mention.

4. You stated, "So, if the seller agrees to pay for this assistance AND agrees to pay the buyers closing costs, then yes, indeed, a buyer can buy a house with $0 out of pocket"

Answer: Actually, they can get a deferred loan and finance 100% plus closing cost. Yes?

I have never said they can get 100% financing through FHA. And, I honestly can not understand where you have read this in my comments after several comments. I do not disagree with the fact you can not obtain 100% financing through FHA.

I simply disagree with a lot of the information in your blog.

All, I know is I have done several FHA loans where the borrower exceeds 100% on their CLTV. I agree people should not advertise 100% FHA financing and no where in my comments did I say anything different, but that is not the only thing your blog said. I stated a simple fact. Correct your blog and move on.

In my experience, it's usually when someone's wrong that nerves are touched quite so much as yours Mr. Lowery. So, let's recap and I'll accept the apology.

You claim: 1. You stated, "So the maximum financing that can be delivered to a client on an FHA loan is 97%." - This is untrue.

From my original post: (It can be a little less in other states but 3% is a nice safe number to remember)

You claim: 2. You stated, "So, why do people advertise 100% financing?"

Answer: Because there are resources.

Uhm, the whole post addresses that. But once again, 100% FHA Financing (again, the whole point of the original post) does not exist.

You claim: 3. You stated, "And that gift can be from anyone. Including the seller through FHA approved Down Payment Assistance Programs (at least until October 1st)."

Answer: There are many Bonds and Grants that offer deferred loans that equate to 100% financing, which you never mention.

This isn't a blog entry on bond and grant programs, now is it?

You claim: 4. You stated, "So, if the seller agrees to pay for this assistance AND agrees to pay the buyers closing costs, then yes, indeed, a buyer can buy a house with $0 out of pocket"

Answer: Actually, they can get a deferred loan and finance 100% plus closing cost. Yes?

Again, that's not 100% FHA Financing, so I'm fairly confused about what your point is. You can combine a lot of different programs in a lot of different ways to get to 100% Financing on a loan. Again, this is not a post about those programs.

You claim: I have never said they can get 100% financing through FHA. And, I honestly can not understand where you have read this in my comments after several comments. I do not disagree with the fact you can not obtain 100% financing through FHA.

Your post (post number 15 on this thread): so FHA does finance 100% with current guidelines and UFMIP. It sure reads like you claim they can get 100% Financing through FHA. I am glad you now acknowledge that you don't disagree with the fact that you can not obtain 100% financing through FHA, but if you can't understand 'where I have read this in your comments', see the first line of this paragraph.

You claim: I simply disagree with a lot of the information in your blog.

You may disagree, but you've helped me tremendously in making my original point, so thank you.

You claim: All, I know is I have done several FHA loans where the borrower exceeds 100% on their CLTV.

As have I. Again, though, not the original point of the blog entry.

You claim: I agree people should not advertise 100% FHA financing and no where in my comments did I say anything different,

Hey, we agree on something! (And it's the main point even!)

You claim: but that is not the only thing your blog said.

You're correct. I also talked about another one of the huge abuses in mortgage advertising--the 102% LTV loan through USDA.

You claim: Correct your blog and move on.

Uhm, well, I stand behind my blog and hope that more mortgage brokers/loan officers/mortgage consultants/whatever else we're calling ourselves these days come to the same conclusion on advertising that we did.

AUG

2008

OK corral Well, I think I feel a shootout coming on. (and not in regards to my comment, but what took place above)

Seriously..... I am not going to say what side I am taking but to state from semantics of things... This might be hard in a way to explain in a comment. What did you call 80/20 loans? 100 percent financing, right? There was zero down on the house itself, hence calling it 100% financing, no matter how you looked at it. But, FHA's requirement in most cases, is that you have to put down at least 2.25% on the property. If this is the case, wouldn't this be called 97.75 percent financing? Yes, it would. If I got seller help which would be used through the DPA programs or money from my parents as a gift, or those other types of grants that come from the county or state and used this for my down payment and or closing costs... and I came to the table with no money out of pocket? This is not 100% financing. You still need to take that money and apply it to the down payment.

In my honest and professional opinion, based on my comment, you still can't call this 100% financing. It can be advertised legally as no money out of pocket. Those that advertise it as 100% financing are misleading, getting one leg up on the competition, and are being decieving. And these are the people that usually end up charging a little higher rate and or more fees or points.

On another note..... yes, depending on the type of scenario, it's possible to have a CLTV pf 110% to 115% on a FHA loan. Maybe not so much now, but it was done in the past and legally. Big example.... this would happen more so on a refinance. If I was refinancing the first and subordinating the 2nd. And yes, this can still be done on a purchase, which would usually happen because you would be using one of those county programs that gives a grant that is forgiven after 5 to 7 years. And since it's still considered a loan, without using the word loan... (grant) and still has a self life per se, it gets counted towards the CLTV. Under FHA, this is more determined by the UW and or the investor. It's very unclear by FHA, but can be done.

In regards to how much you have to have for a FHA loan, as the borrower. People need to realize, underwriter's and investors can make up or add any guidelines or rules that they want. You don't need any money out of pocket. You can receive cash back on a purchase, but only up to the amount of your deposit. I closed a loan like this 6 weeks ago. I used Nehemiah, the seller giving $8,300 towards the closing costs and down payment. My buyer had put down $700 as a deposit. Well, I worked the numbers down to the penny to where the buyer got his $700 back at closing. That meant that he spent nothing, zero. I even had the appraisal included in the final numbers, not asking for this money upfront.

Overall, these are my thoughts and opinions of 16 years in lending. It's very easy to twist or mislead with percentages, when reality says... if your loan amount is less than the purchase price, then there was a down payment. Can you argue the fact that you are adding the UFMIP which will give you close to 100% financing? That is not part of the LTV or the money needed for the down payment. It is like a servicing fee that HUD collects for their services. Thye just allow it to be rolled into the loan. that it is financed. You still need a downpayment, which means that there is no 100% financing.

Before I leave... I will disagree with the statement... "100% FHA Financing DOES NOT EXIST. Yes, it's true. It doesn't exist, never has, and never will." Now wait.... Never will? I wish I had that crystal ball. I think the Roman's once said that Rome will never fall? Or that Great Grandpa Belonger in 1902 said that man will never reach the moon? Okay, maybe silly... but to say never? Did you know that 100% financing was actually approved by HUD and some parts of congress, before the whole mortgage meltdown? And that it was voted down in fear of what was going on with Wall Street and the subprime market. It was on the table and was part of the whole thing about higher loan amounts, that were approved over 2 years ago. But since we are talking about government, aka snails, it took forever to make in and out of Congress and voting.

jeff belonger

Jeff, I usually agree with you. Now again, I will state would I originally said. "Grants and bonds are offered in many states and many are deferred loans. They are typically forgiven in 48-180 months. So, technically, it is 100% financing. Yes?" This is correct. That is all my original comment said.

This deferred loan is on the HUD, they are financing 100+ LTV, and they have no down payment. With my 18 years experience as of October 1, no matter how you want to pick it apart, it is 100% financing. I did not say 100% was through FHA. This 2nd is a lien and is used for the down payment, but it IS a loan.

If FHA is financing 97% and there is a 2nd mortgage financing the 3%, that is 100% financing. 80/20 or 97/3, it doesn't matter. If the 80 was with ABC bank and the 20 was with XYZ bank, did you not call it 100% financing?

I, also, never said I was a proponent of advertising 100% FHA financing. In fact, I have never seen it advertised and don't have an opinion on this. I am not disagreeing or agreeing with the title of this blog. I honestly do not have an opinion on whether people should advertise it or not. I have bigger fish to fry. I simply disagree with some of the arguments and missing information within the blog.

Now, on the LTV and financing UFMIP...this was not my argument for adveritising 100% FHA Financing. It was my argument that FHA does not just fund 97% LTV, period. So, lets drop that puppy.

Please read all my comments if you are going to state an opinion on my comments.

"This isn't a blog entry on bond and grant programs, now is it?"

Jason, No, it isn't. But, these loans do equate to 100% financing when combines with an FHA loan. When I stated I do 100% financing, you and Jason went on the attack. But, it is an argument on the other side and it is a fact.

You can stand behind your blog. I will stand behind the fact that I do FHA loans with 2nd liens, which cover the down payments, and equate to 100% financing. That is a fact. Have a great day.

But, I will say this... If a broker/lender is not approved to do these loans and they are advertising 100% FHA financing (because of a DPA or family gift), that is wrong and an outright lie.

I got a broker across the street from me. On his sign, it says,

"Lowest rates since 2005. Stop in for a quote."

Eric,

As expected Jeff eloquently explained the point I was going to bring up regarding the comparison to the old 80/20 combos. They were usually advertised as 100% "conventional" financing deals, though 20% was anything but...

I also feel what you are doing here is splitting hairs. For the consumer, if they are coming in with zero cash then they will consider it 100% financing. Yes we can confuse the he** out of everything in our business by spitting out crazy jargon no lay person should ever have to learn, but should we do that? I think I understand your beef to be simply that lenders should not use the term 100% FHA financing, and you are 100% right (factually), but if by pushing that mentality you discourage even 1 qualified buyer from applying for a loan then you have done a great disservice. Yes Eric, 100% FHA financing does not exist now (but it may soon-another great point Jeff- I won't bother repeating it) but 100% financing based on an FHA loan is done constantly.

Now I'm forced to move out of the grey area. Eric your post states "While I'm at it, 102% Financing through USDA doesn't exist either" and that is simply wrong. You go on to insinuate the program is quite limited in your immediate geographic range, which just leads me to believe you are limited in your expertise of the program. This quote comes from the RD handbook prepared by USDA in Gainesville, FL and does apply to the program nationwide- " Loan up to 102% of appraised value- Loan is NOT limited to lower of contract or value. Difference of contract and value can be used to finance closing costs. The guarantee fee can be added to the appraised value."

Eric, I will close in saying your tone is quite contentious and as such you're encouraging "a shootout", but if you do choose to go that route you better REALLY know your... you get the message I'm sure. Always disclose properly but ultimately facilitate the lay person's ability to navigate the sometime treacherous waters that mortgage financing can be. That usually means simplifying, not complicating things.

Gerry Suarez, Jr.

Your HUD Loan Pro!

Oh btw-

yes it's a shameless plug but if you want to know more about the RD program why don't you join the group:

http://activerain.com/groups/USDARD

There are some fantastic old posts that concisely pack plenty of info.

@ Bob.... first off, I never mentioned your name nor were my comments directed towards your comments. I read the whole blog and every comment. ... not remembering who said what. So I guess you felt attacked, but as stated, mine was just a comment for the peanut gallery.

But since you bring some things up.... here is a fact and you even mentioned it yourself. ""Grants and bonds are offered in many states and many are deferred loans. They are typically forgiven in 48-180 months. So, technically, it is 100% financing. Yes?" This is correct. "

This is not correct, since it is a deferred loan with a payback option if they sell the house or refinance before the expiration time. If they sold the house in 3 years, they would have to pay back all or some of the monies. So, how would that be called 100% financing? And you missed my whole point.... you still have to TAKE THAT MONEY and use part of it as a down payment. In an 80/20, if you bought a house for $100,000, your loan would be 80k and 20k. If you bought a house with a FHA loan and got a $10,000 grant, this is how it would work. Same example above and the total costs with closing costs, escrows, and down payment would be $10,000. You bought the house for 100k. Your base loan amount would be $97,750, right? You used $2,250 for the down payment which left you with $7,750 for your closing costs and prepaids. Is this correct?

If you answered yes, then it's not 100% financing.... it's called, no money out of pocket. As mentioned, you can split hairs all you want. You can make donkey sound like a horse....but reality is that it's not 100% financing. Does FHA allow seconds above 100%? Yes... and yours is a second, but with a payback feature. So you can't call it 100% financing.

Eric, In regards to Gerry's statement on USDA loans, he is correct. I just didn't say anything, because I am not an expert on that type of loan... only doing a few in my time.

jeff belonger

Jeff, I have only once response.....

Huh?

"You bought the house for 100k. Your base loan amount would be $97,750, right? You used $2,250 for the down payment which left you with $7,750 for your closing costs and prepaids. Is this correct?

If you answered yes, then it's not 100% financing.... it's called, no money out of pocket."

Because its a loan, is what makes it 100% financing. (ie. the word financing) Let's switch your argument to the 80/20... If I apply your argument to that, then it would only be 80% financing because they have to pay the second back... Jeff, that makes no sense.

In my opinion in your scenario above, that would be 100% financing with no money down.

"This is not correct, since it is a deferred loan with a payback option if they sell the house or refinance before the expiration time. If they sold the house in 3 years, they would have to pay back all or some of the monies."

Huh? If they have to pay it back, then it is a loan. (ie. 100% financing)

Please beware of words like, "This is not correct".

This is your opinion and not fact.

Easy tiger.

@ Bob.... this is a lost cause. If it was 100% financing, FHA would have a 100% financing program. It's not... just ways to get the client into the home with no money out of pocket. It's not opinion, but fact. When you do a DPA, what is your LTV, even if a client comes to the table with no money? If you get a grant, even though the client comes to the table with no money, what is your LTV through FHA? Don't you still have a base loan amount? If so, then it's not 100% financing.

In regards to my example... you need 2.25% down, right? you need a down payment, no matter how you cut it up. Your loan balance with the investor, through Ginnie Mae servicing, it is 97.75% LTV... that is not 100% financing. In any case, think what you want. 100% financing means that your loan amount is the same amount of your purchase price. 80/20 loans equaled 100%. If I did a loan that was $103,000, but the purchase price was $100,000, then that is called 103% financing. But it's one loan at 103%. All a grant does is exceed the LTV and could be paid back, hence why it's not 100% financing. You still need to apply a down payment, no matter where the money comes from. Does that make sense? And if so, how do you still call it 100%? All you are doing is twisting the wording around, just because the buyer is not putting any money down themselves. It's still not 100%. Just no money down.

jeff belonger

Jeff it is on this one. It may only be 97% LTV for the first. But the 2nd lien would be at 100% LTV and FHA would be at 100 CLTV because of the subordinate financing. That is 100% financing.

FHA's LTV has nothing to do with the loan's overall LTV. No, FHA will not do 100% financing, but there are many programs out there that enable the borrower to obtain 100% financing.

These are not twisting words around. 97+3=100. Its simple math. Its a 1st and a 2nd lien.

I guess it is a lost cause.

Bob.... you yourself said that the loan is good for 48 to 180 months, the grant that is. If they move or refinance previously, they need to pay the money back. How do you still stand by the fact that it is 100% financing then? First off, I don't know any grant that will go beyond 7 to 8 years. So, 180 months? But anyhoo.... it's just a way for you to advertise something.... but it's not 100%. 100% is one loan to the full purchase price. You are getting what's called assistance. you can say loss cause, but then aren't you just copying me? lol But I am done with this, but you will say and do what you want anyhow. I am just hear to educate the consumers and beware of termonology that gets twisted, to make it sound like the loan officer has a program that nobody else has. A CLTV is different and should be explained different. It allows extra financing.... but you still need to have a down payment, no matter where the money comes from. End of story...

But one more thing, because your math cracks me up. SO, 97 + 3 = 100. Okay, I agree... so, if I was buying a property worth $100,000 and my dad gave me a $50,000 gift as my down payment.... is this what you would call it... 50 k loan + 50 k gift = 100% financing? Just curious..

jeff belonger

Because you have to pay loans back. The grants in Maryland are called deferred loans.

Now if its a loan, is the down payment payed out of pocket? A gift? Or financed? Cause those are the three choices.

We have MALP in Baltimore County. Its up to $35,000 and it is a deferred loan for 180 months. I also have a Harford County Grant for Cops and School Teachers for 120 months. There are a bunch.

"my dad gave me a $50,000 gift as my down payment.... is this what you would call it... 50 k loan + 50 k gift = 100% financing? "

Now that would be silly. The LTV is 50% and the rest is a gift. As I stated before, gifts would not constitute 100% financing, since it is not a loan and can not be paid back. Grants are deferred loans and have to be paid back if they refinance or sell within a certain time frame.

With your argument, you could argue that the 100% second was actually borrowing the down payment for the 80% first mortgage.

A GRANT is a deferred loan and the down payment is financed. When you add up the liens and divide into sale price, it will exceed 100% LTV.

Guess, we are done. Have a nice day Jeff. I thoroughly enjoyed agreeing to disagree with you today.

Hey guys - Let's just say we can all originate FHA loans with NO out of pocket money. How's that?

Damn if it isn't Football season! GO SKINS!!!

Bingo... no money out of pocket. and go Eagles.... again, maybe I'll try to get to a Birds/Skins game down your way. I need to look at the schedule. Reply back to my e-mail and we'll talk later. jeff

I must disagree again. Man, two times in one day Jeff....

GO RAVENS!!!

Jeff, just so y'all know, I advertise with ZERO money Down...

I am not trying to advertise on this blog. Eric can delete if he wishes...

Bob, I like the add. I hope that can still be used after 10/01/08.....

In regards to the Ravens... dude... lol That is an AFC team... lol You would have to wait to the SUper Bowl, in which case won't be the Ravens. I didn't really agree when they wasted a few years with McNair at QB.. that's another story....

wait a second... zero money down? hhhhmmmm Isn't that a fine line? lol In my thinking, zero money down is expressed as down payment.... seriously, there is no argument if it said no money out of pocket. With zero money down, there is still no 100% claim that the 2nd would take place, meaning, no money out of pocket. This is a catch 22 for many consumers, because the loan officer uses termonolgy that can go either way. Not saying that you do... but it's easier for me to make a so-called promise, which I don't do, but can change things around, because the wording is not 110% clear. Does that make sense?

jeff belonger

Yes, it does make sense.

Gerry said it best... "Always disclose properly but ultimately facilitate the lay person's ability to navigate the sometime treacherous waters that mortgage financing can be. That usually means simplifying, not complicating things."

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