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No-Money-Down Mortgages Are Making a Comeback

Unlike the days of the real estate bubble of more than a decade ago, they require strong credit scores, mortgage brokers say. Flagstar offers its zero-down mortgages in low- and moderate-income areas of the state. 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. Still, some lenders, including Quicken Loans, have pulled back from mortgages with little or no down payments in the wake of a decision last year by Freddie Mac, a giant, federal home loan financing authority, to tighten up the rules. Given that Freddie Mac buys billions in mortgages each month from banks and mortgage companies, the new rules, which make it more difficult for buyers to avoid putting any money down, has had a big impact. Bill Banfield, the executive vice president of capital markets for Quicken Loans, doesn't think the decision was based on any issues with the loans, with his own company's low-down-payment mortgages having performed well. And these mortgages are not just popular among low- and moderate-income buyers. With a conventional loan, every 5% more you put down will typically lower both the interest rate and the amount of mortgage insurance, required on all loans in which the down payment is under 20%, according to Quicken's Banfield. When the next real estate downturn comes, this may increase the chances that you end up with a dreaded upside-down mortgage, owing more on your home than it is worth. That said, if you are faced with not being able to buy now or buying now and being able to build up equity over the long term, a no or low down payment mortgage may still be worth it in the end, MHA's Schmiedl says.