It’s no surprise that, as CNN puts it, “zero-down mortgages are making a comeback.” recent declaration. After all, home prices soared during the pandemic-induced housing boom and have continued to rise since, recently hitting their ninth all-time high in the past year. This just makes the down payment more expensive and somewhat unrealistic for many people.
Think about it like this: In March 2020 average home value In California, it was over $572,000. The current price is just over $786,000. 20% is traditionally the magic number when it comes to down payments, so the starting value four years ago is $114,400 and the latter is $157,200. caution median household income It’s only $91,550, which may sound reasonable, but it’s not much compared to a typical down payment. Of course, sometimes you can put 10% or 5% down. In this case, the down payment cost for the average California home today is $78,600 or $39,300, respectively. It’s gotten better, but it’s still not something everyone can do. So what about a 0% down payment?
last month, united wholesale mortgageIt is one of the largest home mortgage lenders in the United States. Announced a new program The program, called 0% Down Buy, “aims to help more borrowers become homeowners without having to make a down payment up front.” This allows borrowers to receive a 3% down payment assistance loan of up to $15,000 from UWM. That means you can’t buy a typical home in California because the sale price of the property can’t exceed $500,000. Other markets, including Texas.) Down payment loans are available in the form of second lien loans. It does not accrue interest or require monthly payments, but must be paid in full by the end of the loan term or after the first lien is paid off. So the same goes if you sell or refinance.
Essentially, homeowners have a second mortgage to pay off, with much higher monthly payments for the first. But they will be entering a frozen housing market.
Borrowers must make 80% or less of the median income for the area they wish to purchase or where the property is located. Or you must be a first-time homebuyer (or someone who hasn’t owned a home in the past three years). Interested buyers cannot go to UWM in person and must still work with brokers and loan officers. After all, it’s not easy to jump into the housing market as a first-time buyer right now. That’s why a zero percent down program may seem like a good thing, and it may be. However, there are some concerns.
Advantages of 0% down payment
In some cases, a buyer may have the financial means necessary to maintain monthly mortgage payments (much higher the lower you pay), but coughing up tens of thousands of dollars to close may be unreasonable.
“If you can maintain your monthly payments and have some sort of reserve, you can tackle the bigger challenges of homeownership,” says Cathy Lesser Mansfield, professor of consumer finance law. Case Western Reserve Universitysaid luck. Mansfield’s research The subprime mortgage crisis is widely talked about and evaluated. she also testified before Congress About predatory mortgage lending
In other words, 0% down payment programs could allow people who have traditionally been unable to purchase a home to enter a broken housing market. Nonetheless, they will need enough money each month to pay the principal mortgage, interest, taxes and insurance costs.
Mansfield says homeownership is “critical to wealth building” and has been for decades. “It’s important for the stability of the neighborhood. It’s important to keep children in the same school system as they grow.” These programs can also help increase diversity and equity in homeownership rates, she adds.
… and cons
There are also long-term consequences that need to be understood. This means that if new homeowners put nothing down, they will have no equity in their home to begin with. With a traditional 20% down payment, new homeowners already have equity in their property. However, a 0% down payment is the same as getting a 100% mortgage. This means the homeowner has no equity in the home.
“The risk with that location is the concern that if the value of the home falls, you will be locked out of your home,” Mansfield said. “Or when you try to sell or refinance, you’re going to have to bring a lot of money to the table as a seller.”
There is an inherent risk with a 0% down payment that a homeowner could be mired in a quagmire if prices plummet and they have to sell, and if you’re familiar with it, it can bring back memories of previous crises. Risky lending practices partly precipitated the subprime mortgage crisis. Home prices plummeted, mortgage defaults rose, and mortgage-backed securities deteriorated. The bursting of the housing bubble and the massive losses suffered by financial institutions became the catalyst for the financial crisis.
So if homeowners need to sell but don’t have enough cash to make up the difference, they risk foreclosure. “That’s exactly what happened during the subprime crisis, when millions of homeowners fell into mortgage debt and defaulted on their mortgages,” Patricia McCoy, a Boston College Law School professor and former Consumer Financial Protection Bureau mortgage regulator, told CNN. . “This has happened before and it could happen again.”
Even if homeowners don’t have to sell and the value of their home falls, they can end up owing more than the home is worth. But UWM insists its program will not trigger another subprime mortgage crisis.
“They don’t know what they’re talking about,” said Alex Elezaj, UWM’s chief strategy officer. luck, referencing those who suggest the program could lead to another subprime mortgage crisis, or simply comparing the two. “They’re just uneducated about the realities we’re dealing with today. Great legislation and great compliance on the loans. And ultimately, UWM will make the decision about whether or not we will actually lend and do so in a safe and sound manner.”
Think about how much has changed in the last few years,” he said. “What loans were 20 years ago, before the financial crisis, and how they are handled today are just night and day different.” Income verification, asset verification and credit score verification are all done differently now, Elezaj said. That’s why he claims his company’s program is “a very viable, great product.”
And home prices may not fall anytime soon, let alone as much as they did during the financial crisis. We are constantly reminded that this housing cycle is different from other housing cycles. While mortgage rates have soared and sales have fallen, home prices have not followed their typical downward pattern. They woke up. Some of it has to do with 30-year mortgages and some of it has to do with the fact that we’re losing millions of homes.
That’s not to say that 0% down mortgage programs are perfect or will solve all your problems. Take for example the UWM program, which allows homeowners to receive higher monthly payments on their second and first mortgages. And that can be risky if you want to refinance or need to sell within a few years. But if house prices continue to rise at their current rate, we may not trigger another all-too-familiar crisis. But there are other, potentially safer options. Chase has a 3% down mortgage program and so does Citigroup. And there are FHA loans that always require only a 3.5% down payment.
Parents also have a choice. After all, this is a “nepo” housing market, and Millennials and Gen Zers are already asking their parents and family members for help with a down payment.
