Is It Possible To Get a 100% Mortgage And Buy a Home Without a Deposit?
Yes it is…kind of. There are a number of options for first time buyers to get a 100% mortgage but some form of security will still be required so read on to find out whether a 100% mortgage might be good for you. But be warned, a 100% mortgage isn’t for everyone and it is strongly advised you take professional advice before taking on something like this.
What is a 100% Mortgage?
The vast majority of mortgages that are available today require you, the borrower, to have a deposit of at least 5% of the purchase price of the property you wish to buy. So if you’ve got your eye on that luxury Oxford house for £400,000 you are probably going to need at least a deposit of £20,000. But even with a deposit of 5% the lender will see this as a high risk loan to value and the interest rate will be higher than average.
But lenders have become increasingly creative recently, in their search for new business, and have developed a number of 100% mortgage products where they do not require a cash deposit but instead take some other form of security. Types of security could be parents’ savings, or equity in the family home, but the key thing is cash doesn’t change hands as long as the mortgage repayments are maintained.
Types of 100% Mortgage
Family Savings Mortgage
Parents may deposit a cash sum equal to 10% of the purchase price in a savings account that they will not be able to use for a set period of time at the beginning of the mortgage, say 3 years.
As long as the mortgage payments are maintained in a satisfactory manner then after the predetermined lock in period the savings are returned to the parents, usually with the interest it has earned.
Family Equity Mortgage
As with the family savings mortgage, the family equity mortgage forgoes the need for a cash deposit in return for a charge on the family home. There are usually strict conditions such as the property should currently be mortgage free but if you tick all the boxes then this can be a great option. As no cash is locked up and assuming all payments are made as they should be no one will ever really notice the charge until it is discharged after the set period.
A guarantor mortgage is where a family member or close friend argee to gurantee your mortgage repayments. They would essentially have to sign to agree they will pay your mortgage if you fail to keep up with the mortgage payments.
Is a 100% Mortgage Right For You?
Although it may sound like a dream come true to be able to jump on the housing ladder without having a deposit, it is a decision that should not be taken lightly. You are taking on a huge financial commitment which could cost someone you love very much a lot of money so it is essential you get proper advice before considering a 100% mortgage.
But, if you’re lucky enough to have a family member who is willing to help you out, taking a 100% mortgage could be an excellent way to start on your journey towards your dream home!
If you would like any help with a mortgage or anything else to do with mortgages or property, then get in touch and I will gladly give you some free advice. And head over to my about me page to learn a bit more about me and how I can help.