Getting 100% financing for real estate is much more common now than even ten years ago. Lenders no longer look for clients to put down 5%, 10%, or more of the property's value as a down payment.
100% financing can be used to cover closing costs. For example, if a house costs $200,000 and the buyer wants it but also wants to cover the closing costs through the loan then:
-the seller increases the price to $205,000
-buyer gets a 100% financing loan for $205,000 with a concession to apply $5,000 towards closing costs
-the seller still in the end gets a net price of $200,000 after using $5,000 to help cover closing costs
lenders can allow up to 6% of the value of a property to be used to cover closing costs (loan costs, property transfer costs, etc.)
The most obvious benefit is the ability to use leverage. If you put nothing down on a property and it rises in value then you have minimized your cash outlay for the investment return.
100% Financing For The Investment Property
Many lenders now offer 100% financing for properties that are rented out by the owner. These rental properties are usually between 1-4 unit buildings or traditional single family residences. This is not a financing option to buy a large apartment building.
Lenders can restrict the number of rental properties they will finance for a given borrower. The limit can be four properties but can be higher. The other rental properties show up on your credit report as additional mortgages.
Additional Factors To Consider About 100% Financing
The risk in 100% financing is that the property declines in value. This leaves you with negative equity, where you own more on a property than it is worth. In this case, you may be able to refinance it with a 125% loan, which is a loan that is 125% of the value of your property.
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