It’s Ba-aaack: Return of the 100% Mortgage

Some of Coastal Delaware’s wealthiest buyers may be getting a mortgage without putting a single dollar down. And we aren’t talking about single-bedroom fixer-uppers, either! 

It's called 100% financing, and, at first blush, it looks suspiciously like a version of the strategy that sent the economy reeling in 2008.  But lenders feel that well-heeled Rehoboth Beach residents who are getting a mortgage through these programs are totally different.  How so? you may ask. 

For openers, these loans are offered only to the super-qualified: those with serious investment portfolios they can use as collateral. That means getting a mortgage with zero cash for the down payment. That can carry an additional tax benefit, since the borrower won't have to pay a capital gains tax on investments liquidated to fund a down payment. 

Since current mortgage rates can be as low as 2.5%, since even middling investment accounts often return a higher rate, the difference make this strategy what the Wall Street calls an ‘arbitrage play’. 

So what would a homebuyer getting a mortgage in Rehoboth Beach need to do to qualify for one of these mind-bending loans?  In addition to the willingness to put up two forms of collateral (the property and a portion of your investment portfolio), the Wall Street Journal offers some relevant details: 

• The amount that can be borrowed against any investment account depends on what’s in the portfolio. Usually up to 95% of account cash; up to about 80% for bonds; between 50% and 75% for most stocks. Withdrawing pledged funds is usually restricted. 
• To get the lowest rates, clients who already have significant assets at a particular bank should consider applying for 100% financing there. 
• Borrowers still need to pass regular underwriting requirements. They’ll need – high credit scores, a low level of overall debt, and documentation of substantial income or assets. 

Of course, getting a mortgage doesn’t require a seven-figure portfolio.  If you are seriously thinking about buying a Rehoboth Beach home, call us – we’ll get started by getting you pre-qualified.