If you are a homeowner with poor credit and are looking for 100% mortgage financing, you might be surprised to discover it is almost as easy to get approved with a poor credit rating as if you had good credit.

Subprime mortgage lenders offer many 100% mortgage packages for homebuyers; in many cases you can find 103% mortgage loans to include your closing costs. How do these loans work? You have several options when it comes to this type of financing; here is what you need to know in order to get started.

Pros and Cons of 100% Mortgage Loans

The main advantage of a 100% mortgage loan, especially if you have poor credit, is that you can get into a home with little or no cash down. Instead of throwing your money away on rent, you can build equity in your own home. The disadvantage of 100% financing is that you will pay much more for financing; higher interest rates, closing costs, and lender fees all accompany loans of this type. There is also increased risk for the homeowner because you are purchasing your home with zero equity. If the economy takes a nosedive and the value of your home declines, you could end up owning more than your home is worth.

Another advantage to this type of financing is that you generally will not be required to pay for private mortgage insurance; private mortgage insurance can add hundreds of dollars to your mortgage payment and does nothing to protect the homeowner, only the lender.

There are several options for 100% mortgage loans. If you can find a mortgage lender willing to finance the entire amount with one mortgage, that would be the least expensive option. The other option is to finance your home using an 80 20 mortgage. Your first mortgage is for 80 percent of the purchase price, and you will use a second piggy back mortgage for the remaining 20 percent.

You can learn more about your mortgage financing options, including common mortgage mistakes to avoid, by registering for a free mortgage guidebook.