103% Home Loans
103% LTV is a conventional fixed rate home loan where
the monthly payments remain the same over the life of
the loan. Once the mortgage is in effect, the interest
rate does not fluctuate but remains constant. Furthermore,
the loan is 103% of the sales price of the home. This
allows for 3% of the loan amount to be used towards the
buyer's closing costs.
fixed rate loan is one of the most commonly used mortgages
for residential financing in America. The greatest advantage
for a home buyer is the predictability of the payments
each month because it never changes. This type of loan
is often recommended for home buyers living on a fixed
income, a set budget, or those planning on living in their
home for more than five years. If interest rates increase,
the loan rate will remain the same. Unfortunately should
rates decline below the set interest rate on the loan,
the only way to change it is to refinance the mortgage
and incur a loss of equity or additional closing costs
to take advantage of the lower interest rate.
key disadvantage of this type of loan is the high loan
amount in relation to the value of the home. Generally
a home buyer must occupy the home for at least three to
five years before he/she is able to cover normal selling
costs should that become necessary. Otherwise there may
not be enough equity to cover real estate commissions
and typical seller costs when the home is sold.
following are highlights of this loan program:
Payment Requirements: No down payment required. The
loan amount is 100% of the lesser of the appraised value
or the sales price. Excess loan proceeds may be used towards
traditional closing costs, prepaid items, and consumer
credit. If the borrower elects to use the excess proceeds
towards consumer credit, revolving or installment debt
may be paid at closing to help the borrower qualify.
and employment: There are no limitations placed upon
income requirements. As for employment, there are no limitations
on a specific length of time at a particular job. However,
a 2 year history is required, preferably in the same line
of work (education can be counted towards this 2 year
history if it is for the same profession the borrower
is currently in).
properties and occupancy requirements: Single family
attached and detached homes, 2 to 4 unit properties, planned
urban developments (PUDs), and Fannie Mae or Freddie Mac
approved condominiums. Investment properties are not allowed
with this program.
Costs: Closing costs and prepays may be paid by interested
parties (i.e. seller) as long as they are considered in
the contribution limitation. For primary and second homes,
the seller may contribute up to 3% of the sales price.
Excess loan proceeds may be used towards traditional closing
costs, prepaid items, and consumer credit. If the borrower
elects to use the excess proceeds towards consumer credit,
revolving or installment debt may be paid at closing to
help the borrower qualify.
This type of loan is not assumable.
Penalty: Not applicable.
Reserves: The borrower is required to have a minimum
of two months cash reserves in the bank by the close of
escrow. Six months cash reserves may be required for borrowers
with less than a 680 credit score.
Funds: Not allowed
Scoring: Generally Fannie Mae and Freddie Mac require
a minimum credit score of 620 for owner occupied and second
(Non-Occupant Co-Borrowers): Not allowed.
Ratios: A borrower's total debt (proposed monthly
payment plus monthly payments towards credit cards, student
loans, car payments, and other installment and revolving
credit) cannot exceed 45% of their gross monthly income.
Insurance: Not required.