{"id":173917,"date":"2024-06-12T11:49:58","date_gmt":"2024-06-12T17:49:58","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=173917"},"modified":"2024-06-12T11:52:20","modified_gmt":"2024-06-12T17:52:20","slug":"zero-down-mortgages-are-making-a-comeback","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/zero-down-mortgages-are-making-a-comeback","title":{"rendered":"Zero-Down Mortgages Are Making a Comeback\u2014Is This the Beginning of Another Housing Crash?"},"content":{"rendered":"\n

With housing prices and mortgage rates <\/span>rising<\/span>, it\u2019s becoming <\/span>harder<\/span> for the average person to own a home, let alone invest in a second property.<\/span> One mortgage lender has introduced a 0% down program <\/span>in the hopes of attracting<\/span> more buyers.<\/span> While some critics are worried it\u2019s similar to the subprime mortgage crisis that led to the 2008 financial crash, others say it\u2019s nothing new.<\/span><\/p>\n\n\n\n

United Wholesale Mortgage (UWM) announced its <\/span>zero-down program<\/span><\/a> in May. <\/span>This program allows borrowers who qualify to get a <\/span>mortgage<\/span><\/a> and a second loan to cover the <\/span>cost of the down payment<\/span>.<\/span> Borrowers can get a 3% down payment assistance loan of up to $15,000. <\/span><\/p>\n\n\n\n

This second loan will not accrue interest or have a monthly payment. Instead, the loan has to be paid back in full if the home is sold, the mortgage is paid off, or the borrower <\/span>refinances<\/span><\/a>.<\/span><\/p>\n\n\n\n

Homebuyers who want to take advantage of this program will need to be at or below 80% of the property address\u2019s area median income or be <\/span>a first-time<\/span> buyer<\/span>.<\/span><\/p>\n\n\n\n

Is This a Repeat of the 2008 Housing Crisis?<\/span><\/h2>\n\n\n\n

While UWM says no other wholesale lender is offering this type of program nationally, programs have been in place for years that assist buyers with low or no down payments, such as bond programs, housing authority assistance on a local level, and veteran loans. The U.S. Department of Agriculture (USDA) also offers <\/span>zero-down home loans<\/span><\/a> in some rural areas, while<\/span> Bank of America<\/span><\/a> launched a zero-down mortgage program in 2022 for some Black and Hispanic communities.<\/span><\/p>\n\n\n\n

Still, only a few of these programs exist, and they have many more controls <\/span>that <\/span>were<\/span> set<\/span> in place after the financial crisis. Lenders can no longer provide 100% financing on stated income, Lindsey Harn, a real estate agent in California, told BiggerPockets. \u201cThere is oversight on the financing, which far exceeds previous efforts,\u201d she said. \u201cLenders and banks are held to strict \u2018ability to repay\u2019 guidelines, which hold them accountable to ensuring that a borrower has the stability and means to meet their debt obligations.\u201d<\/span><\/p>\n\n\n\n

Josh Brotemarkle, president and general counsel at Centra Capital Partners, told BiggerPockets that the real estate boom seen during the early 2000s was partly fueled by interest-only mortgages, which, like zero-down mortgages, assume that real estate will appreciate in value. But real estate can depreciate, and people are likely to walk away if they owe more than the home is valued at.  <\/span><\/p>\n\n\n\n

While zero-down mortgages can help homebuyers purchase a new home, these programs are not without risk<\/span>, he added<\/span>.<\/span><\/p>\n\n\n\n

\u201cThe price to pay for programs that seek to curtail traditional lending practices <\/span>is paid<\/span> with a currency called \u2018moral hazard,\u2019\u201d Brotemarkle explained. \u201cMoral hazard occurs when people act in risky ways because they do not bear the full consequence of their actions. <\/span>When borrowers are not at risk, they<\/span> are less likely to care.\u201d<\/span><\/p>\n\n\n\n

Can Investors Benefit From Zero-Down Mortgages?<\/span><\/h2>\n\n\n\n

UWM\u2019s zero-down program <\/span>is aimed<\/span> at homebuyers struggling to purchase a property<\/span>, but<\/span> that doesn\u2019t mean investors can\u2019t take advantage to buy a second property, provided they meet the requirements. Other zero-down programs could also be worth looking into, although their strict eligibility requirements and income requirements often mean that very few real estate investors qualify. <\/span><\/p>\n\n\n\n

A <\/span>down payment<\/span><\/a> is one of the <\/span>biggest<\/span> barriers to real estate investing, and these loan products can help <\/span>a lot of<\/span> people build their wealth, Nicholas Ritacco, portfolio manager and director at IB Global, told BiggerPockets. \u201cIf investors can find options that work for them, I believe they have to do so with the right plan,\u201d he added.<\/span><\/p>\n\n\n\n

Still, many real estate experts say a zero-down mortgage might not make investment sense, as not putting any money down means you are starting <\/span>out<\/span> with little <\/span>equity<\/span><\/a>. <\/span>One<\/span> of the <\/span>biggest<\/span> risks is that these programs offer very high <\/span>loan-to-value<\/span><\/a> loans and are essentially all debt<\/span>, said Ritacco<\/span>.<\/span> It also doesn\u2019t allow investors to refinance with an option to cash out.<\/span><\/p>\n\n\n\n

Harn agreed, as zero-down programs \u201care too restrictive in rate to make sense as a business model.\u201d<\/span><\/p>\n\n\n\n

\u201cA sufficient down payment and reserves should be used to ensure a property can adequately cover its debt service,\u201d she added.<\/span><\/p>\n\n\n\n \n

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With housing prices and mortgage rates rising, it\u2019s becoming harder for the average person to own a home, let alone invest in a second property. One mortgage lender has introduced […]<\/p>\n","protected":false},"author":613681,"featured_media":173919,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[8],"tags":[],"class_list":["post-173917","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-trends"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/173917","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613681"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=173917"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/173917\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/173919"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=173917"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=173917"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=173917"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}