Positive Real Estate Professionals

I have heard many Real Estate Professionals that think that 100% financing should be dead, however, it does still exist and in my opinion it should continue. Those that think it should be done away with point to 100% financing as the reason that we are in the Real Estate foreclosure and delinquency issues we are in currently. To them, I say “HOGWASH!” It was not 100% financing that got us into this problem, it was making 100% loans to people that had a history of not paying their debts while not verifying that they made enough money to make their payments that contributed to this happening. Add that to the area of education, and you have a lot of the cause behind the effect.

In defense of the 100% buyer, I do not believe that people buy or bought a property with current or past loan programs with the thought that they will never make a payment. I think it actually turned out that way in some cases because the loan officer and the Realtor® did not do the proper educating of the buyer. I am certain that a lot of Realtors® will say that it is not their responsibility to educate the buyer. I think they are wrong just like it is and was wrong to a loan officer not to take the time to explain payments, increases due to ARMs and payment schedules. When you work with a buyer, it is up to you to make sure that they understand the process 100% of the way. This goes for the Realtor® or the loan officer. For instance, if your client is going up from $800 a month for rent to $1000 a month for house payment and have no savings, where is the $200 coming from and will they be prepared when the water heater goes out with a contingency fund? Education!

I may be on a soap box about this issue, but frankly, if more people were on the same one 4 years ago, maybe we could have avoided many of these foreclosures. How many people got into trouble when they didn’t have any idea that their payment could go up? How many of them know right now that they can also go down?

Over my years helping people in this industry I have been asked time and time again, who the best candidates are for 100% financing. Well, to be honest with you, that is a no brainer. The first and foremost candidate would be one that is willing to make at least a 5 year commitment to living in the home. Buying a home in this economy at 100% financing and expecting to be able to sell it in a year of two for a profit is a thing of the past. Now, please understand, I am not saying that it can’t happen. I am saying that it is not worth the chance that you take for that to happen. I would rather not have to face a consumer that I told it COULD happen that finds themselves at taking a loss or even breaking even. If you are going to buy and move in 2 years, rent!

Now, let’s move forward. Once you determine the commitment time, then the next thing to figure out is how much money they have to put toward the home. Bottom line is the ability to make payments after closing. If closing takes everything that your buyer has when using a standard FHA loan that might require 3.5%, then you might want to look into the USDA or VA loans if your client is a candidate. The one thing to remember in using USDA is that the property actually plays into the equation, so you might want to check the property address before showing the listing to a USDA client.

If you have not read USDA Rural Development Loans: Some Basic Information by Rich Dansereau, then I highly recommend reading that as well. Understanding the products and what clients fit into them are just as important as understanding the client themselves. Arming yourself with the knowledge to educate is just as important as well.

So, I leave you with this thought: Even though 100% financing is not for everyone, it is for some.