Zero Down Mortgages Making a Comeback

September 13, 2010 No Comments »

zero down

Just a few years after the mortgage crisis swept in, zero down mortgages seem to be making a comeback, according to a piece in the NY Times.

Mortgages with no money down have performed worse than home loans where borrowers have some skin in the game, but proponents believe the lack of down payment wasn’t/isn’t the core issue.

Instead, the combination of zero down financing, lax underwriting requirements (stated income), and exotic loan programs (option arms) has been seen as the problem.

So will the new breed of zero down mortgages perform better than their earlier counterparts?

Affordable Advantage

Fannie Mae recently launched “Affordable Advantage,” a program that allows borrowers to purchase a home for as little as $1,000 down.

Throw in downpayment assistance (to cover closing costs), and you can get a mortgage for as little as 67 cents.

But in order to qualify, you must fully document your income, have a minimum credit score of 680, and actually live in the home.

The only loan offered is a 30-year fixed-rate mortgage, making it all the more safer for borrowers (and mortgage lenders).

Currently, they’re available in four states, including Idaho, Massachusetts, Minnesota and Wisconsin.

And of the 500 loans originated in Wisconsin since March, none are delinquent after six months (slow clap).

USDA Zero Down Loan Program

One of the other few remaining zero down loan programs comes from the United States Department of Agriculture (USDA).

Though it’s reserved primarily for low-income individuals and households, you can have income up to 115% of the median for the area in which you purchase the home (figure that one out).

The property has to be located in a rural area (or exurb) and be modest in size, cost, and design, and borrowers must have “reasonable credit histories.”

But it’s still an easy way around that pesky down payment.

Then there are FHA loans, which only require 3.5 percent down – and before things went so very wrong, you could get 100 percent financing via seller-paid downpayment assistance.

Of course, those loans didn’t turn out so well…

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