In the aftermath of the Great Recession, no-money-down mortgages got a bad rap, blamed for being part of a toxic brew of bad lending that crashed the real estate market.
But in a bid to reach credit-worthy buyers struggling to save up thousands to secure a loan, mortgage lenders are experimenting again with very low down-payment mortgages.
These are not your parents’ zero-down loans. Unlike the days of the real estate bubble of more than a decade ago, they require strong credit scores, mortgage brokers say.
Even so, there are a number of trade-offs buyers have to consider before going the no-money-down route, including the prospect of paying more over the long term of their mortgages.
“There are significant barriers preventing people from attaining homeownership and one of the major barriers is the down payment,” says Elliot Schmiedl, homeownership director for the Massachusetts Housing Partnership. “The days of saving up 20 percent down are long gone — now it’s 3% to 6% and people even have trouble making those payments.”
For potential buyers, there are a number of options to look at when considering whether to pursue a mortgage with a tiny down payment or none at all.
United Wholesale Mortgage is promoting a mortgage in which the buyer would have to put down just 1%, with the lender kicking in an additional 2% as a gift. Buyers can’t get the deal directly from United, but have to go through a national network of independent mortgage brokers, according to the company.
Troy, Mich.-based Flagstar Bank and Cincinnati-based Fifth Third Bank have rolled out their own zero-down mortgage programs across much of the Midwest and parts of the South.
Flagstar offers its zero-down mortgages in low- and moderate-income areas of the state. The loans are targeted at those making between $35,000 and $62,000 and looking to buy in the $80,000 to $175,000 price range, according to the Detroit Free Press. The bank offers as a “gift” the 3% down payment plus up to $3,500 in closing costs in “challenged” areas like Detroit, where total assistance can go up to $7,500, according to a spokeswoman for the bank.
Fifth Third Bank offers no-money-down 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 gifts the 3% down payment — up to a maximum of $3,600.
Still, some lenders, including Quicken Loans, have pulled back from mortgages with little or no down…