Zero-Down Payment Mortgages Make a Comeback as Housing Costs Soar

In a bold move to make homeownership more accessible amid rising housing costs, United Wholesale Mortgage (UWM), led by billionaire Mat Ishiba, is introducing a pioneering zero-down payment mortgage program. 

Designed to finance up to 97% of a home's value, this program enables qualified buyers to secure a mortgage with no initial down payment. It offers a secondary mortgage of up to $15,000 to cover the rest. This interest-free second mortgage is repayable when the home is sold, the primary mortgage is cleared, or upon refinancing.

Consider purchasing a $300,000 home; buyers would obtain a $9,000 no-interest loan for the down payment. Moreover, for a home valued at $500,000, eligible buyers could receive the maximum assistance of $15,000. 

The secondary loan's amount is determined by the lesser of the home's appraised value or sale price, a crucial detail in markets where sale prices frequently surpass appraisal values.

Eligibility Criteria

The program targets first-time homebuyers and those earning up to 80% of their area's median income, with a FICO credit score requirement of at least 700. For those qualifying via the income route, a minimum score of 620 is necessary.

UWM's President and CEO, Mat Ishbia, expresses enthusiasm about the program, highlighting its uniqueness in the wholesale lending sector and its potential to empower mortgage brokers and aid numerous buyers sidelined due to down payment constraints.

Program Constraints and Market Implications

Despite its appealing nature, applicants must still fulfill standard lending obligations, including debt-to-income ratios and demonstrating the ability to repay the loan. The introduction of this zero-down payment initiative is particularly timely, given the current backdrop of elevated mortgage and interest rate, which have tempered home sales. 

After a peak in mortgage rates at slightly over 8% in October of the previous year, rates had moderated to the 6% range earlier within the year, only to ascend once more by May.

By eliminating the down payment obstacle, this program stands to significantly benefit potential buyers, especially when considering a scenario like a 30-year fixed-rate mortgage at 6.75% on a $350,000 loan, which entails a monthly expenditure of $2,270 for principal, interest, and mortgage insurance, excluding additional homeownership costs like property taxes and insurance.

Through this initiative, UWM aims to invigorate the housing market by offering a more accessible path to homeownership for many, reflecting a strategic response to the challenges posed by the current economic landscape.

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