{"id":174171,"date":"2024-06-17T12:53:21","date_gmt":"2024-06-17T18:53:21","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=174171"},"modified":"2024-08-18T06:12:55","modified_gmt":"2024-08-18T12:12:55","slug":"the-real-impacts-of-using-0-down-mortgage-programs-for-investors","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/the-real-impacts-of-using-0-down-mortgage-programs-for-investors","title":{"rendered":"The Real Impact of 0% Down Mortgages and How an Investor Could Use One&#8230;or Not"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC4385624162\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p><span data-preserver-spaces=\"true\">Raise your hand if you got burned by real estate in 2008. You can\u2019t see it, but I\u2019m raising my hands, feet, and even the hairs on my neck.<\/span><\/p>\n\n\n\n<p><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/zero-down-mortgages-are-making-a-comeback\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">United Wholesale Mortgage (UWM) recently made news<\/span><\/a><span data-preserver-spaces=\"true\"> by launching a 0%-down mortgage program. And it reminds many real estate analysts of the subprime mortgage frenzy that helped fuel the market collapse <\/span><span data-preserver-spaces=\"true\">back<\/span><span data-preserver-spaces=\"true\"> in 2008.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">So, as you scope out the new program, what\u2019s the potential impact on real estate investors?&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">A Summary of UWM\u2019s 0%-Down Program<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">First, let\u2019s start with the facts. <\/span><span data-preserver-spaces=\"true\">The program allows lower-income first-time borrowers\u2014those earning a household income below 80% of the local median household income\u2014to borrow up to 97% of the purchase price. <\/span><span data-preserver-spaces=\"true\">The<\/span><span data-preserver-spaces=\"true\"> remaining 3%, or what would ordinarily be the down payment, <\/span><span data-preserver-spaces=\"true\">UWM covers<\/span><span data-preserver-spaces=\"true\"> with an interest-free second mortgage.<\/span><span data-preserver-spaces=\"true\">&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Borrowers don\u2019t make monthly payments against the second mortgage. When they sell or refinance the property, they must repay <\/span><span data-preserver-spaces=\"true\">both<\/span><span data-preserver-spaces=\"true\"> the first and second mortgages in full.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">This<\/span><span data-preserver-spaces=\"true\"> sounds like <\/span><span data-preserver-spaces=\"true\">an awesome<\/span><span data-preserver-spaces=\"true\"> deal for the borrower. All things being equal, I\u2019d take that deal as a borrower. Who doesn\u2019t love interest-free financing?<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What About House Hacking?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">The<\/span><span data-preserver-spaces=\"true\"> first thought that popped into my head <\/span><span data-preserver-spaces=\"true\">when BiggerPockets asked me for my thoughts on how this loan program might impact investors<\/span><span data-preserver-spaces=\"true\"> was, \u201cWow, that\u2019d be great for <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/real-estate-investing\/house-hacking-strategy\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">house hacking<\/span><\/a><span data-preserver-spaces=\"true\">.\u201d<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">If you could buy a <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/newbie-house-hack-duplex\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">duplex<\/span><\/a><span data-preserver-spaces=\"true\">, triplex, or fourplex with no money down and have <\/span><span data-preserver-spaces=\"true\">it<\/span> <a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/rental-property-cash-flow-analysis\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">cash flow<\/span><\/a><span data-preserver-spaces=\"true\"> enough to cover your mortgage payment, you immediately step into free housing and a property that appreciates over time. And your mortgage payment stays fixed even as rents rise <\/span><span data-preserver-spaces=\"true\">year after year<\/span><span data-preserver-spaces=\"true\">, growing your cash flow over time.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">After a year of living in the property to fulfill the owner occupancy requirements, you could <\/span><span data-preserver-spaces=\"true\">then<\/span><span data-preserver-spaces=\"true\"> use the money you saved on housing payments to buy another <\/span><span data-preserver-spaces=\"true\">multifamily to house<\/span><span data-preserver-spaces=\"true\"> hack. You couldn\u2019t use the UWM program a second time, but you could use Fannie Mae\u2019s or Freddie Mac\u2019s 3% down program or put down 3.5% on an FHA loan. And you would no longer be confined by the income limit at that point.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Even so, that income limit would disqualify many, even most would-be house hackers<\/span><span data-preserver-spaces=\"true\">. Food<\/span><span data-preserver-spaces=\"true\"> for thought.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Risks and Impacts of 0% Down Mortgage Programs<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">I see a few risks with these kinds of programs, as well as their impacts on a few different groups. Here\u2019s a look at them.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Risk of inflated home prices and bubbles<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">For many would-be homeowners, the <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/down-payment\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">down payment<\/span><\/a><span data-preserver-spaces=\"true\"> creates the main barrier to entry. Remove that barrier, and you suddenly have an influx of new buyers <\/span><span data-preserver-spaces=\"true\">on the market<\/span><span data-preserver-spaces=\"true\">. <\/span><span data-preserver-spaces=\"true\">This<\/span><span data-preserver-spaces=\"true\"> drives up home prices and <\/span><span data-preserver-spaces=\"true\">adds to<\/span><span data-preserver-spaces=\"true\"> the possibility of a <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/i-invest-despite-real-estate-bubble-predictions\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">housing bubble<\/span><\/a><span data-preserver-spaces=\"true\">.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">All market bubbles burst sooner or later. <\/span><span data-preserver-spaces=\"true\">And it wouldn\u2019t even require a bubble or a<\/span><span data-preserver-spaces=\"true\"> housing market correction <\/span><span data-preserver-spaces=\"true\">to put a lot of<\/span><span data-preserver-spaces=\"true\"> homeowners underwater.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Risk of underwater homes<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">In this case, <\/span><span data-preserver-spaces=\"true\">home prices dipping even 3%<\/span><span data-preserver-spaces=\"true\"> would put these homeowners underwater on their <\/span><span data-preserver-spaces=\"true\">mortgage<\/span><span data-preserver-spaces=\"true\">. And that <\/span><span data-preserver-spaces=\"true\">says nothing of<\/span><span data-preserver-spaces=\"true\"> all the closing costs involved in selling a home.<\/span><span data-preserver-spaces=\"true\">&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">They would be <\/span><span data-preserver-spaces=\"true\">unable<\/span><span data-preserver-spaces=\"true\"> to sell, at least not <\/span><span data-preserver-spaces=\"true\">without<\/span><span data-preserver-spaces=\"true\"> coming out of pocket with tens of thousands of dollars of their own money.<\/span> <span data-preserver-spaces=\"true\">This<\/span><span data-preserver-spaces=\"true\"> seems <\/span><span data-preserver-spaces=\"true\">awfully<\/span><span data-preserver-spaces=\"true\"> unlikely for the low-income borrowers this program is designed to serve.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">That sets the stage for strategic defaults and foreclosures\u2014or, at the very least, short sales negotiated with lenders. These lenders may struggle to accommodate them in a down market.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Risk of credit crunches and lender failures<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">If<\/span><span data-preserver-spaces=\"true\"> too many loans default or require short sales<\/span><span data-preserver-spaces=\"true\">, lenders go into crisis mode<\/span><span data-preserver-spaces=\"true\">.<\/span><span data-preserver-spaces=\"true\"> They tighten their lending standards or stop lending altogether.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Some may even fold. We saw two <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/on-the-market-89\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">regional banks fail<\/span><\/a><span data-preserver-spaces=\"true\"> in early 2023 due to <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/commercial-real-estate-fundamentals\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">commercial real estate<\/span><\/a><span data-preserver-spaces=\"true\"> exposure and far tighter lending standards in the industry after that.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Finally, these loans get packaged and sold as securities. So, who ultimately takes many of the losses on them? You, me, pension funds, and other retail investors who have money tied up in these publicly traded funds and securities.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Impact on note and debt investors<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">Over the last two years, secured notes and debts have <\/span><span data-preserver-spaces=\"true\">actually<\/span><span data-preserver-spaces=\"true\"> performed pretty well. We\u2019ve seen strong returns on the ones we\u2019ve <\/span><span data-preserver-spaces=\"true\">gone in on<\/span><span data-preserver-spaces=\"true\"> together in our passive real estate investment club at SparkRental.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">But imagine a housing bubble forms, or at the very least, the market dips by 5% to 10% nationwide. Hard money lenders, private debt funds, and others offering secured debts will see their non-performing loans skyrocket and, therefore, their losses. That would be bad news for people like me who invest passively in debts secured by real estate.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Impact on private equity real estate investors<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">In our Co-Investing Club, we primarily go in on real estate syndications together.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">A 2008-style housing-induced recession would drive up unemployment, which would, in turn, drive up rent defaults, evictions, and household bundling\u2014all bad news.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">One mitigating factor,<\/span><span data-preserver-spaces=\"true\"> if you <\/span><span data-preserver-spaces=\"true\">want to<\/span><span data-preserver-spaces=\"true\"> call it that, is that some homeowners would become renters again, fueling demand for rental housing.<\/span><span data-preserver-spaces=\"true\"> But that\u2019s cold comfort for everyone involved.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">On the other end of the possibility spectrum, let\u2019s say the program does <\/span><span data-preserver-spaces=\"true\">exactly<\/span><span data-preserver-spaces=\"true\"> what it aims to <\/span><span data-preserver-spaces=\"true\">do<\/span><span data-preserver-spaces=\"true\">: put homeownership within reach for millions of renters. They all leave the pool of renters and become homeowners, crushing demand for rental housing.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">That\u2019s hardly good news for passive investors in multifamily <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/gaining-financial-freedom-using-long-and-short-term-rentals\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">real estate syndications<\/span><\/a><span data-preserver-spaces=\"true\">.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Activists Want It Both Ways<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">We\u2019ve all heard housing activists demand better access to homeownership for low-income families. I\u2019m not opposed to that. I can\u2019t think of anyone who is.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">But here\u2019s the problem: Read any article about the launch of UWM\u2019s 0%-down loan program, and you\u2019ll see quotes from those same housing activists warning about \u201csetting buyers up for failure,\u201d or \u201cticking time bombs,\u201d or \u201cthe subprime nightmare all over again.\u201d<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Guess what? Subprime mortgages <\/span><span data-preserver-spaces=\"true\">were created<\/span><span data-preserver-spaces=\"true\"> at the request of those same housing activists, who demanded more credit accessibility for low-income borrowers. They wanted fewer barriers to entry.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Those barriers to entry keep the system stable. They ensure a minimum level of financial security among borrowers.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">So which is it? Do you want homeownership <\/span><span data-preserver-spaces=\"true\">more accessible, or less<\/span><span data-preserver-spaces=\"true\">?<\/span><span data-preserver-spaces=\"true\"> You can\u2019t have it both ways.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What About Investors?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">As for real estate investors, just<\/span><span data-preserver-spaces=\"true\"> keep an eye on real estate market fundamentals<\/span><span data-preserver-spaces=\"true\">. Watch<\/span><span data-preserver-spaces=\"true\"> out for frothiness<\/span><span data-preserver-spaces=\"true\">. And<\/span><span data-preserver-spaces=\"true\"> when in doubt<\/span><span data-preserver-spaces=\"true\">, invest more conservatively<\/span><span data-preserver-spaces=\"true\">.<\/span><span data-preserver-spaces=\"true\"> Our No. 1 goal when we look at deals today as an investment club is protecting against downside risks.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">We like investments that can weather some choppiness in the market\u2014and you should, too.<\/span><\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_c8b20e4dfcfa04f6e5d98c9493c411a1\" class=\"visibility-group  hidden\">\n        \n\n<div id=\"hero-block_b32fce52b4ff422fa8b0ce8cf7834fe2\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-theme-gold-light-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-gold-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Get the Best Loan Today<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Find trusted, <em><strong>investor-friendly<\/strong><\/em> lenders who specialize in your strategy. <\/p>\n\n\n\n<p><\/p>\n\n\n\n<div id=button-custom-event-block_4f8f1c3515f607f6233afaeecdc0bf0d class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/business\/finder\/lenders\"\n        x-on:click=\"window.analytics.track('Blog Block | B2C Marketplace Lender Finder', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/the-real-impacts-of-using-0-down-mortgage-programs-for-investors',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Find a Lender<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Marketplace-Blog-Blocks-Lender-v3.png\" alt=\"investor friendly lender, investor friendly real estate loans\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/signup\"\n        x-on:click=\"window.analytics.track('Blog Block | Acquisition | Free Membership Signup', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/the-real-impacts-of-using-0-down-mortgage-programs-for-investors',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Raise your hand if you got burned by real estate in 2008. You can\u2019t see it, but I\u2019m raising my hands, feet, and even the hairs on my neck. United [&hellip;]<\/p>\n","protected":false},"author":158586,"featured_media":172145,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4433,7119],"tags":[],"class_list":["post-174171","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-opinion","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/174171","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\/158586"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=174171"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/174171\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/172145"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=174171"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=174171"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=174171"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}