How Will The Zero Down Mortgage Comeback Affect The Housing Market
As crazy as it sounds, the zero down mortgage is making a comeback! What affect will no down mortgage have on the housing market and your real estate investing plans this time around?
I don’t know about you, but I remember the crash a few years after the real estate boom of 2005. Basically, as long as you could sign your name and you had a heartbeat, you could get a mortgage… with no down payment, and that ended well, didn’t it? Not so much.
Like I said, the market crashed and, well the reset is history. So, how will the new zero down mortgage work and how will it affect the housing market? Is history about to repeat itself? Let’s talk about that…
The New Zero Down Mortgage
Although it sounds like a really bad idea to most of us who were in the real estate industry during the market crash, we’ll just have to wait and see how it all pans out. So here’s how United Wholesale Mortgage proposes their new Zero-Percent Down Mortgage Program will work.
From what I can tell, it looks a lot like a 97-3 mortgage. That means that the buyer will essentially be getting two loans.
The lender will fund 97% of the purchase price on a first mortgage and then they’ll fund a second mortgage for the additional 3%. So the buyer will have a 97% first mortgage and a 3% second mortgage.
Remember, the reason why there is a down payment in the first place is to limit the risk of a buyer defaulting on the mortgage. Requiring 3% or more down shows that the buyer has a $$ invested… a little skin in the game so to speak.
So, statistically, the less the down payment - the easier it is for a buyer to walk - so basically the riskier the loan, the more defaults you’re likely to see… especially if the market has a down-turn like in 08.
Before 2014, the minimum down payment for Freddie Mac and Fannie Mae (the two largest single-family residential mortgage loan funders in the US) was 5%, but in December of 2014, Freddie Mac reduced the minimum down payment to 3% with their HomePossible Program. sf.freddiemac.com/working-with-us/origination-underwriting/mortgage-products/home-possible
Fannie Mae also has their version of the 3% down program called the Home Ready Mortgage Program. singlefamily.fanniemae.com/originating-underwriting/mortgage-products/homeready-mortgage
How do you feel the new zero down mortgages will affect the housing industry? Is this the answer to affordability in today’s homebuyers? Is it a fake prop-up to the economy? Is it too risky - what if the market breaks from the peak we’re currently on and values come down? Is it going to come back to bite us like it did in 2008-2009? Or, should we stop worrying and go for it? What are your thoughts?
Troy Schuyler
Oregon Real Estate Broker
troyschuyleragentseller.carrot.com/blog/how-will-the-new-zero-down-mortgage-affect-the-housing-market/