It appears the pesky down payment hurdle to homeownership is finally being swept aside.
This week, Fifth Third Bank out of Cincinnati, Ohio announced the availability of a mortgage with absolutely no down payment requirement.
Put simply, that means you no longer need to save up to buy a home, whether that’s actually a good thing or a bad thing.
This seems to have been borne out of necessity, not preference, especially as home prices reach new heights nationwide.
Fifth Third’s Down Payment Assistance Program
The so-called “Down Payment Assistance Program” from Fifth Third relies upon Freddie Mac’s Home Possible Advantage, which allows for loan-to-value ratios as high as 97%.
The remaining three percent of the home purchase price is covered by Fifth Third via down payment assistance.
Fifth Third will allow up to $3,600 in down payment assistance, meaning the property price can’t exceed $120,000.
So the loan program is clearly geared toward those with low or moderate income, not just anyone looking to forego the usual down payment requirement.
The property must also be located in the following states: MI, IN, IL, KY, TN, OH, WV, NC, GA, FL.
To qualify, the property must either be located in a Low Income Census Tract or the borrower must meet the low income limit threshold based on figures from the Federal Financial Institutions Examination Council (FFIEC) website.
Prospective home buyers can also utilize local and state housing programs to “take advantage of free money for their down payments.”
Fifth Third does note that the down payment assistance might be treated as taxable income and reported to the IRS, so keep that in mind when pursuing this type of loan.
You don’t need to be a first-time home buyer to take advantage of this program, and if it aligns with Freddie Mac’s guidelines, the minimum FICO score is just 620.
However, if you are a first-timer, you probably have to complete some form of homeowner education.
The property must be a single-unit, primary residence, though I believe both single-family homes and condos/townhouses qualify.
Loan options are probably restricted to fixed-rate offerings, with the 30-year fixed the most likely candidate for home buyers with limited means.
No Money in the Bank
The Freddie Mac program doesn’t require asset reserves so qualifying homeowners may be able to purchase a home with absolutely no money in the bank.
Additionally, it comes with reduced mortgage insurance premiums, making monthly payments more affordable to those with limited income.
Fifth Third is the latest bank to offer a low or no-down payment mortgage option.
A couple weeks ago, Guaranteed Rate launched a 1% down mortgage that relies upon a forgivable grant as high as 7% of the purchase price.
Quicken Loans, the largest nonbank mortgage lender in the nation, also has a 1% down payment mortgage that isn’t widely publicized.
Interestingly, all of these new mortgages rely on conforming loan programs and noticeably snub government lending such as FHA, which fell out of favor recently after a number of lawsuits.
While it’s great to have another flexible mortgage option, keep in mind that it may be more difficult to get your offer accepted if you are putting little to nothing down.
Home sellers aren’t particularly keen on seemingly high-risk buyers because chances of lender fallout are higher.