What Is a Flex 100 Mortgage?
In the mortgage lending business, there is an expression that some borrowers are "cash poor, but credit worthy." Borrowers may not have a down payment to purchase a home, but they have good credit and will likely repay a loan. The Flex 100 program helps these borrowers buy homes by financing 100 percent of the purchase price. Flex 100 is offered by Fannie Mae, a government-supported agency with a mission to make home ownership easier for Americans. While a Flex 100 loan may seem like an easy path to home ownership, securing the loan is not always easy and you could find yourself in a negative equity situation where you could owe a bank thousands.
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Rules of Flex 100
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If you are approved for a Flex 100 loan, the lender will provide the full, agreed-upon purchase price for your home. If you agree with a seller to buy a home for $150,000, the bank will provide $150,000 at a fixed or adjustable rate, with a term of 15, 25 or 30 years. But here's the catch -- when you purchase a home, you typically incur closing costs beyond the purchase price of the home. These costs can include money for inspections, legal fees or reimbursing a seller for taxes pre-paid. The price tag for closing costs can reach into the thousands. When you purchase a home, you can stipulate that the seller must pay certain or all closing costs. But Flex 100 requires that you contribute at least $500 out of your own pocket at the closing table.
Finding Flex 100 Lenders
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To get a Flex 100 loan, you need to locate a bank that is certified to offer Fannie Mae products. A generation ago, most mortgages where handled by local banks. Today, the growth of online lending means you have more choices when looking for a lender. Before giving a bank your financial information, be sure to ask whether they offer Fannie Mae loans, and the Flex 100 loan in particular. If you are using a mortgage broker to help you find the right lender, be sure to communicate that you want a lender that offers the Flex 100. Banks may offer other no money down mortgages, but they may carry higher interest rates.
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Issues Affecting Flex 100 Eligibility
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The Flex 100 loan is designed for borrowers at all income levels. As with just about any loan, the main factor that will influence whether you are approved for a Flex 100 loan is your credit score. Lenders are understandably reluctant to loan the full purchase price of a home to a borrower with a spotty history of repaying loans. Generally speaking, if your credit score is between 720 and 850, you have good credit and are a desirable candidate for a loan. If your credit score is less than 660, you may have trouble finding a lender willing to loan you money under the Flex 100 program.
Flex 100 Risks
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Unless you purchase a home for less than it's worth, you will have no equity in your home under the Flex 100 program. While many home buyers have little or no equity in their homes, the risk is that you could develop negative equity. Remember, real estate does not always appreciate in value, particularly during recessions. If your home declines in value and you are forced to sell due to job loss, divorce, relocation or some other circumstances, you would potentially end up selling the home for less than you owe. You could end up owing the bank thousands. Before using the Flex 100 program, take a look at real estate values in your market and whether they are declining. That will give you some insight into whether you could be quickly facing a negative equity situation.
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