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.