Flagstar Bank is the latest mortgage lender to offer a home loan with zero down payment requirement. They even go a step further by offering to pay the borrower’s closing costs too. Sounds pretty sweet, doesn’t it?
Unfortunately, the new loan program is only available to select borrowers in the state of Michigan, where most of the company’s physical bank branches are located.
However, Flagstar does have retail locations in 27 states, and offers mortgages to borrowers nationwide via their wholesale and correspondent channels.
Flagstar Gift Program Provides 3% Down Payment and Closing Costs
The so-called “gift program” from Flagstar Bank is intended to help low- and moderate-income home buyers in low- and moderate-income areas throughout Michigan.
The company will promote homeownership in these areas by removing one of the major hurdles, the pesky down payment.
It seems to be building off the Fannie Mae and Freddie Mae 97% LTV loan program that is widely available nationwide because borrowers will be gifted a 3% down payment.
That means they’ll wind up with a loan for 97% of the value of the home, instant equity, and no cash out of pocket required.
There is no obligation for borrowers to repay this 3% gift either, though they will apparently receive an IRS form 1099, which means the gift might be treated as income and thereby be taxable.
Flagstar removes an additional hurdle by offering to kick in as much as $3,500 to cover closing costs.
That sounds like a pretty good deal, especially since the mortgage rates can reportedly be as low as 4% depending on the borrower’s credit score. It’s unclear what the minimum credit score requirement is.
Who Qualifies for Flagstar’s Mortgage Gift?
One major limitation is that the home purchase must take place in a qualifying area of Michigan, which includes 18 counties.
The properties must be located in qualifying census tracts and the price of the homes will generally be in the range of $80,000 to $175,000.
Borrowers who qualify will also apparently have incomes in the range of $35,000 to $62,000, so those making too much won’t be able to take advantage of this offer.
Those who do wish to take part have to be first-time home buyers, meaning no ownership interest in the past three years and no current ownership.
That also means the home must be a primary residence, not a second home or investment property, for obvious reasons.
Additionally, the borrower must complete home buyer education prior to receiving the mortgage.
Many mortgage lenders also offer 1% down mortgages, though a recent crackdown has targeted these loan programs for perhaps circumventing the rules and being deemed too high-risk.
For the most part, most of these low and no down payment programs will continue to be pretty targeted, generally only allowing those in the most need to take advantage of the looser requirements.
If that’s not and you’re still having trouble coming up with the necessary funds to buy a home, there’s always crowdfunding the down payment. Or simply waiting until you’re in a better position to buy.