Zero Down Payment Mortgages Are Here Again
Mortgage loans are prohibitively expensive; this is hardly breaking news. Housing prices are so far outside people’s budgets that the only way to lower your mortgage payment to something that you can qualify for is to make a sizable down payment, but rent is so expensive that no one can save for a down payment on a mortgage. It is a vicious cycle, but at least it is not as bad as the subprime mortgage crisis of 2008, or is it? Zero down payment mortgages, one of the most frightening aspects of the 2008 mortgage crisis, have reappeared on the horizon. The most optimistic people who have no fear of risk might say that this is a promising sign, because it presents a scenario where not having the money for a down payment is not an obstacle to qualifying for a mortgage loan. People who were old enough to think about finances in 2008 will remember, though, that being on the hook for the entire price of a house when you cannot even afford a down payment equivalent to three percent of its value is a scenario that rarely ends well for the borrower. To find out more about purchasing real estate when you have little cash on hand, contact a Washington, D.C. real estate lawyer.
Are Zero Down Payment Mortgages as Scary as They Sound?
A zero down payment mortgage is any mortgage loan that a bank lends you without you first paying a portion of the value of the house. These loans have not been available for about 15 years; in the housing market crisis of 2008, many borrowers defaulted on these mortgages, so banks stopped offering them. As of June 2024, one lender, United Wholesale Mortgage (UWM), has recently started offering them.
With a UWM mortgage, you do place a down payment, equivalent to three percent of the purchase price of the house, but you don’t have to come up with the money out of your own funds. Instead, you borrow it from UWM as an interest-free loan; it is not due until you sell the house or refinance the mortgage. As long as you do not suffer a reduction in income, everything is fine, but that is a big if. The other side of the coin is that, as soon as your mortgage loan accrues interest the first month, the total amount you owe exceeds the value of the house; in other words, your mortgage is underwater, and it will be years before you have any equity. Some people consider it a risk worth taking. After all, with a zero down payment mortgage, you will pay a lot each month and start to build equity after a few years, but if you rent, you will pay a lot of money each month and never build equity.
Contact Tobin O’Connor Ewing About Risky Mortgages
A Washington, D.C. estate planning attorney can help you think clearly about zero down payment mortgage loans. Contact Tobin, O’Connor, and Ewing in Washington, D.C. or call 202-362-5900.
Source:
cnn.com/2024/06/03/business/zero-down-mortgage-nightcap/index.html