Following the Great Recession, mortgages with no money back received a bad reputation, which was blamed for being part of a toxic mix of bad loans that collapsed the real estate market.
But in an attempt to achieve credit worthy buyers struggling to save thousands to secure a loan, mortgage lenders are experimenting again with very low down payment mortgages.
These are not the unsecured loans of their parents. Unlike the days of the housing bubble of more than a decade ago, they require solid credit scores, say mortgage brokers.
Even so, there are a number of commitments that buyers should consider before going without money. down down, including the possibility of paying more in the long term of their mortgages.
"There are important barriers that prevent people from obtaining homeownership and one of the main barriers is the down payment," says Elliot Schmiedl, director of housing property for the Mbadachusetts Housing Association. "The days of saving up to 20 percent are gone, now it's 3% to 6% and people even have trouble making those payments."
For potential buyers, there are several options that must be considered when considering to look for a mortgage with a tiny down payment or none.
United Wholesale Mortgage is promoting a mortgage in which the buyer would have to sacrifice only 1%, and the lender will grant an additional 2% as a gift. Buyers can not get the deal directly from United, but have to go through a national network of independent mortgage brokers, according to the company.
The Flagstar Bank of Cincinnati and Fifth Third Bank, based in Troy, Michigan, have started their own mortgage programs without reduction in much of the Midwest and parts of the South.
Flagstar offers its mortgages without discount in low and moderate income areas of the state. The loans are aimed at those who earn between $ 35,000 and $ 62,000 and seek to buy in the price range of $ 80,000 to $ 175,000, according to the Detroit Free Press. The bank offers as a "gift" the down payment of 3% plus up to $ 3,500 in closing costs in "challenged" areas such as Detroit, where total badistance may amount to $ 7,500, according to a bank spokeswoman.
Fifth Third Bank offers non-discounted mortgages for people looking to buy in low-income areas in several states, including Indiana, Michigan, Illinois, North Carolina, Ohio, Tennessee and Georgia.
The bank gives the advance of 3% – – up to a maximum of $ 3,600.
Still, some lenders, including Quicken Loans, withdrew from mortgages with little or no down payment as a result of last year's decision by Freddie Mac, a huge federal funding for mortgage loans. authority, to enforce the rules.
Since Freddie Mac buys billions of mortgages from banks and mortgage companies every month, the new rules, which make it difficult for buyers to avoid putting money, have had a big impact.
Bill Banfield, the executive vice president of c Apital markets for Quicken Loans, does not believe that the decision was based on any problem with the loans, since the mortgages with low initial payment of his own company performed well.
Rather, it was a matter of perception, he argues.
"I suspect there was some concern about the prospect of offering mortgages with no down payment," Banfield says of Freddie Mac's decision.
Still, both the US Department of Veterans Affairs and the US Department of Homeland Security. UU As the US Department of Agriculture UU loans without money back. While you must be a veteran to qualify for a VA loan, the $ 20 billion plus USDA program focuses on loans in rural areas, which can be found in all states and even on the margins of major cities, said Banfield.
The Federal Housing Authority also offers a popular mortgage program that requires only an initial payment of 3.5%, he says.
Mortgages with low or no money back are growing in popularity as the cost of purchase increases. House prices in the United States have risen by 6.3% in December compared to the previous year, according to the S & P CoreLogic Case-Shiller National House Price Index. Many postal codes, especially in the northeast and on the west coast, have long exceeded their 2005/2006 maxima.
And these mortgages are not only popular with low and moderate income buyers. Many professionals, like doctors and lawyers, are also dealing with large amounts of debt, but with solid credit scores, they are also good candidates for low-cost loans, mortgage brokers say.
However, buyers should think carefully before signing on the dotted line. While you may have to pay without money or little money in advance, you may end up paying more in the long term, experts warn.
Some of the advance subsidies promoted by banks are not free, Jill Chodorov Kaminsky, a broker from Maryland, warned in a recent column for The Washington Post, with banks often baking additional fees on the loan.
Buyers who put little or no money are also likely to pay higher interest rates; even half a percentage point makes a difference with respect to a 30-year mortgage.
With a conventional loan, each 5% more that you normally deliver will reduce both the interest rate and the amount of mortgage insurance, required for all loans in which the down payment is below 20%, according to Quicken & # 39; s Banfield.
And not putting money down also means that you have all the debts and you have no capital. When the next real estate slowdown occurs, this can increase the chances of you ending up with a hypothetical mortgage upside down, since you owe more to your home than it is worth.
"What happens if the house loses value shortly after the purchase?" asks Mark Smith, president of Vision Wealth Planning in Glen Allen, Virginia, and a certified financial planner. "They're going to be upside down on the mortgage, the past is not a predictor of the future, but it sure is a good teacher."
That said, if you're faced with not being able to buy now or buy now, and being able to accumulate long-term capital, a mortgage with no down payment or a low down payment may still be worth it in the end, Schmiedl says. MHA.
"If you can not enter the market, you will not be able to reap the benefits of long-term homeownership," he says. "I think they (zero loans) are good in that sense"