A new 0% down mortgage is certainly an attention grabber for the Pontiac-based, mega mortgage lender, United Wholesale Mortgage.
Under the 0% Down Purchase plan, qualified first-time borrowers and others can receive up to $15,000 or up to 3% of the purchase price of a home, whatever is less, for a down payment assistance loan. It's a second loan, in addition to the mortgage, but it has a 0% rate and no monthly payment.
If you're buying a home that appraises at $300,000 as an example, you're looking at a $9,000 no-interest loan for the down payment. To get that maximum $15,000 for a down payment, you'd have to be buying a $500,000 home.
The amount of down payment assistance is calculated based on the lower of the appraised value or the sale price. And yes, in some competitive markets, some homebuyers are still paying more than the appraised value.
Who qualifies for a zero-down mortgage?
If you weren't sure how you'd come up with a typical minimum 3% down payment, you've possibly got a new option. The new United Wholesale Mortgage program is available to first-time homebuyers, as well as many middle-income consumers if they are earning at or below 80% of an area’s median income for the address of the home that they're buying.
A first-time homebuyer is viewed as someone who has not had home ownership interest in a house in the last three years. In the case of the first-time buyer, the FICO credit score must be 700 or higher.
A FICO score of 620 or higher is required for those borrowers who qualify for the 0% down payment program based on the 80% income threshold for the area.
Lending standards remain in place and potential homebuyers would need to meet other underwriting requirements to qualify for a mortgage, including an appropriate debt-to-income ratio. Under the law, mortgage lenders also must consider the consumer's ability to repay home loans before extending them credit.
For some borrowers, the chance to get a 0% loan for a $6,000 or $10,000 down payment is extraordinary.
"The biggest obstacle to homeownership is usually the down payment," said Alex Elezaj, chief strategy officer for UWM in Pontiac.
Just one week after launching the product, Elezaj said, UWM has had a "couple thousand" loan applications. He declined to say how many of these types of mortgages UWM expects to do but he said the company plans to invest "tens and tens of millions dollars" on the program.
A 7% mortgage rate has some buyers thinking twice
High home prices and high mortgage rates — around 7.17% on average in late May — aren't helping home sales. The average 30-year rate briefly hit 8.01% in late October 2023, soaring to a level not seen since 2000; rates then fell below 7% early in 2024 but edged up some in the spring, according to Bankrate.com data.
The strategy of the 0% down payment program is to get potential homebuyers to look beyond the rates and remove another barrier, the lack of a down payment for some borrowers.
The mortgage rate for the 0% UWM product would be based on the market rates, one's FICO score and other factors. On a 30-year fixed rate mortgage at 6.75% as of May 20 on such loans, the monthly payment would be $2,270 on a $350,000 mortgage to cover principal, interest and mortgage insurance, according to an example provided by UWM. It would not include property taxes and homeowners insurance premiums paid through an escrow account. The annual percentage rate would be 6.949% with estimated finance charges of $6,500.
"Assuming that people are comfortable with the (monthly) payment, the real roadblock is the down payment. That's why we did this," Elezaj said.
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In some cases, consumers might realize that the monthly payment on a mortgage might be nearly the same as their $2,000 monthly rent. But they're not buying a home because they're not able to save $5,000 or $8,000 or more for even the minimal down payment on some homes.
Why haven't they been able to save?
Elezaj blamed the fallout from inflation and higher prices.
Many consumers could be struggling to save several thousand dollars for an upfront down payment, he noted, given that they're spending more of their paychecks on groceries, rent, car insurance and other necessities after prices soared once inflation took off two years ago.
"This is our way of saying, 'Hey, we can help you come up with the down payment for this loan,'" Elezaj said. "Now, they can actually go from renting to homeownership."
What are the risks with no money down on a home?
What could go wrong? Consumers cannot afford to gloss over the details or potential risks in their own lives, such as whether they'd need to move in just a few years.
What's key to understand about the UWM product is that the down payment is a loan or what some call a "silent second mortgage." The down payment assistance loan must be paid in full when you'd refinance the mortgage or pay off the mortgage, such as when you sell a home.
It's not $5,000 or $10,000 or $15,000 that will simply be forgiven and forgotten.
Some lower-income borrowers will get a $2,500 grant that would not need to be paid back as part of the 3% assistance. So, as an example, they'd have to repay $3,500 if they obtained $6,000 in down payment assistance. To qualify, a borrower would need a qualifying income that is at or below 50% of an area’s median income for the address of the home that they're buying. (In metro Detroit, that income limit could be around $52,000 a year.)
"The biggest risk is that people might not understand that it does have to be paid back eventually," said Sarah Bolling Mancini, co-director of advocacy for the National Consumer Law Center.
"It's possible that they might not understand at the outset that this is a loan."
And, she warns, that some borrowers might easily forget the terms if they take on the second lien when they buy the home but aren't reminded of it as they're making payments on it each month.
Mancini also expressed concerns that some consumers who aren't able to save enough for a small down payment might not be fully prepared for unexpected, major expenses associated with homeownership, such as a broken water heater, and then they'd end up taking on high cost credit card debt to cover repairs.
In general, though, she said that offering a 0% program could be promising and might provide broader access to homeownership for some buyers. But she said buyers who qualify should first look at mortgage programs that offer grants that would not need to be repaid.
No doubt, some homebuyers today are psychologically keeping the possibility of refinancing in mind. They're not waiting to buy until rates come down. Instead, they're buying the house they want now with the expectation that they might refinance the loan and lower their mortgage payments in the future at some point.
"It's almost like you're going to marry the house but date the rate," UWM's Elezaj said.
Ted Rossman, senior industry analyst for Bankrate.com, said some buyers might be taking on a risky strategy if they think they'll soon be able to cut their mortgage payments by reducing to a lower rate in a few years.
"Refinancing is the big catch," Rossman said. " 'Marry the house, date the rate' is in vogue right now."
While a 0% down payment sounds great, he said, the borrower would need to come up with a great amount of cash right way if they wanted to refinance in a few years. "That could be a significant obstacle," Rossman said. He stressed that borrowers need to understand that the down payment assistance comes in the form of a second lien, which carries a balloon payment once the first mortgage is refinanced or paid off.
"The 0% down payment mortgage strikes me as gimmicky and potentially risky," Rossman said.
Rossman said some safer options, for those who qualify, might be low down payment programs, such as an FHA loan that could require as little as 3.5% down. Some banks, such as Bank of America, Chase, and Wells Fargo, offer some targeted programs too.
Homebuyers need to go through a mortgage broker to obtain the UWM 0% down payment program. Those brokers can also review some other possible mortgages with a borrower. The UWM Mortgage Matchup site helps borrowers find a local mortgage broker by typing in their ZIP code. See www.mortgagematchup.com for information, including some online tools like mortgage calculators.
As the automakers learned decades ago, though, 0% will get them in the door.
Mahb Rahman, chief growth officer and a broker at Safetrust Mortgage in Troy, called the UWM 0% down mortgage "a great hit" that has generated much early excitement in several communities, like Madison Heights, Warren, Hazel Park, Dearborn, Oak, Park, Detroit and other areas where homes are priced around $200,000 to $300,000.
Many of these buyers — who are making $50,000 to $70,000 a year — are trying to get a start as homeowners.
Rahman said he's talked with some renters who want to use the new 0% down program to possibly buy the home they're renting. Some out-of-state landlords are looking to exit a market or free up cash for another project, he said, and may be more willing to sell to a renter, if the renter is qualified for a mortgage.
One "rent-to-own" buyer who has applied for the mortgage through the UWM program is looking to buy a home in Madison Heights that's priced at $165,000. The buyers would get 3% down or about $4,950 through the UWM program, including a $2,500 grant that doesn't have to be repaid if they sold the home or refinanced. Their monthly payment will be around $1,526 with property taxes and insurance. Their income is in the $45,000 range.
The Madison Heights home is owned by a New York-based investor who is willing to unload some properties here, he said.
Other options available
First-time buyers and those with modest incomes can spot more options in various cities and through different lenders. And they should take time to study what's out there for those who might only have modest savings. Often, such programs target low- or moderate-income borrowers. But some programs are extremely specific.
In March 2023, for example, the city of Detroit launched a program targeted to renters to provide up to $25,000 in down payment assistance in Detroit. More than 300 Detroiters became homeowners through the first round, which ended Dec. 4. The program isn't currently open but is expected to reopen in June. Interested residents can get more information at www.detroitdpa.org and sign up there to be notified when the program opens up. The program also is available to those who lost their homes to property tax foreclosure from 2010 to 2016 as a result of overassessments. Various income limits and requirements apply, including proof that the borrower has lived in Detroit for the last 12 months or lost their home in Detroit to tax foreclosure.
Bank of America also has a Community Affordable Loan Solution program, which is available to qualified first-time homebuyers in Detroit, Dallas, Los Angeles, Miami and Charlotte, North Carolina.
Through the Community Affordable Loan Solution, Bank of America will provide a $10,000 down payment grant in Detroit, and there are no closing costs. The homeowner has immediate equity. The borrower must complete a homebuyer certification course provided by a select Bank of America and HUD approved housing counseling partner.
While credit scores remain a part of the underwriting process, the Community Affordable Loan Solution also uses non-traditional information like on-time rent, utility payments and auto insurance payments to demonstrate a borrower’s ability to repay. That program requires no mortgage insurance or minimum credit score.
Individual eligibility is based on income and home location. Anyone can apply. The program is designed to help consumers buy a home in specific majority minority communities, as identified by the U.S. census.
In addition, Bank of America has a Down Payment Grant program that is available in more than 420 U.S. counties for eligible homebuyers. The grant provides a buyer with up to $10,000 of the home purchase price for a down payment, or 3% of the price, whichever is less. If you're buying a $200,000 house, you're looking at a $6,000 grant. The grant doesn't need to be repaid. Income restrictions apply.
Another Bank of America plan called America’s Home Grant, offered in most of the bank's markets, that provides eligible consumers up to $7,500 for non-recurring closing costs, such as title insurance and recording fees, or to buy down their interest rate to obtain a lower rate. No repayment is necessary for that program.
The two Bank of America programs can be used together and provide eligible homebuyers up to $17,500 in grants.
With the assistance of member real estate brokers, the Bank of America Real Estate Center includes home listings and flags eligible properties. In Detroit, according to Bank of America, nearly 90% of the multiple-service listings on its site are eligible for grants.
One can visit the Bank of America Down Payment Center online and select your state to find a variety of programs.
Taking time to shop around for mortgage options, as well as a home, can unlock the door to homeownership. But potential buyers need to take a hard look at what might be buried in the basem*nt of fine print, too.
Contactpersonal finance columnist Susan Tompor:stompor@freepress.com.Follow her on X (Twitter)@tompor.
