With a new program from United Wholesale Mortgage, one of the biggest mortgage lenders in the U.S., people can buy homes without putting any money down.
As stated in a press release, the new program will be open to first-time home buyers and people whose income is at or below 80% of the median income in their area.
For buyers who qualify, UWM UWMC, -0.14% will offer a second-lien loan of up to $15,000 to help with the down payment of up to 3% of the home’s price. There will be no monthly payments or interest on the loan.
UWM said that buyers can also choose how and when to make payments on the second loan. The loan must be paid off in full by the end of the term if the first mortgage is paid off or if the borrower refinances the mortgage.
The CEO of UWM, Melinda Wilner, told MarketWatch, “Homeownership is something we’re very passionate about.”
The company used to let buyers put down as little as 1% on homes, but she said it wanted to do more to help people buy homes. Wilner also said that the lender expects a higher number of applicants with its new zero-down program.
An important cause of the subprime mortgage crisis in the U.S. was bad underwriting, the International Monetary Fund wrote in 2008. But Wilner said that UWM’s program is different from the many low- and no-down-payment loans that were popular at the time. Those loans were given to people who couldn’t pay them back and lost their homes.
She said, “Times are so different now than they were then.” “The rules for underwriting are very, very different now than they were in 2006 and 2008…” and the last time, there were way too many houses on the market. If you look at the supply and demand, they are very different.
Even the federal government agrees that down payments are a big problem for people who want to buy their own home. During his State of the Union address, President Joe Biden asked Congress to help first-time home buyers with down payments by up to $25,000.
Before getting a “silent second mortgage,” here are some things you should know.
Wilner says that this isn’t a new idea because UWM’s program is like state and local programs that help with down payments.
One expert, though, said that home buyers should make sure they fully understand the loan terms before they sign anything.
A senior policy counsel at the non-profit Center for Responsible Lending told MarketWatch in an interview, “The silent second mortgage is what makes me nervous about this program.” “It’s great that there is no interest, but it’s a balloon payment, and people who borrow money need to know what that means.”
The Consumer Financial Protection Bureau says that a “balloon payment” is a one-time payment that is bigger than usual and is due at the end of the loan term.
In the small print at the bottom of UWM’s website, it says that the second loan “has no minimum monthly payment requirements, a term of 360 months and is fully due as a balloon payment upon either the refinancing of the [first mortgage], the payoff of the [first mortgage], or the final payment.”
Leatherer said, “So there are three times when this payment is due: When someone pays off their mortgage, refinances, or sells their home. If a homeowner is ready for these situations, there is no problem. But “if you don’t have a plan, it can lead to foreclosure on the house,” she warned.
Lederer said that people who want to avoid this situation can talk to a housing counselor before applying for this kind of mortgage.
How to get a “foothold” in homeownership
The National Association of Realtors says that the average first-time home buyer puts down 8%. A recent report from Realtor.com said that the average person who bought a home in the first quarter of 2024 put down $26,000.
(Realtor.com is run by Move Inc., a subsidiary of News Corp. Dow Jones, which publishes MarketWatch, is also a part of News Corp.
Yes, buyers can put down as little as 0% these days thanks to programs run by their local governments. The New Jersey Housing and Mortgage Finance Agency, for example, can help first-generation home buyers in New Jersey by giving them up to $22,000 toward the cost of their home. The second loan doesn’t charge interest and is forgiven after five years. There is also no monthly payment, but there are limits on how much you can earn and buy, among other things.
Lederer from CRL pointed out that UWM’s terms don’t say if the loan is forgiven over time, like government aid programs.
Bank of America BAC, -0.26% and other banks also offer a plan where home buyers in some areas don’t have to put down any money.
“Getting help with a down payment is not a new idea,” Wilner said. “But this program makes it a lot easier for everyone, both the buyer and the broker.” She also said that different groups that offer help have their own products, lenders, rules, and requirements.
And it can be hard to keep track of all the different down-payment assistance programs and how they work. Freddie Mac recognized this problem when it launched a program last year to make it easier for lenders and home buyers to use these kinds of programs.
The UWM program comes at a time when the housing market is still stuck because of high interest rates, which make people less likely to buy homes and keep the number of homes for sale low. Mortgage rates are over 7%, which makes it hard for people who already own homes (many of whom have rates below 4%) to sell them and start bidding on another one.
Fannie Mae said in a May report that housing activity would slow down in 2024 because mortgage rates would average 7% by the end of the year. The company that is backed by the government thinks that the average 30-year mortgage rate will be 6.7% in 2025. That would slow down sales of existing homes to 4.19 million per year, according to Fannie Mae. This is a lot less than before and during the pandemic, as you can see in the chart below.
In 2022, UWM was the second-largest company in terms of how many mortgages it originated, according to a recent CFPB report.
With UWM’s zero-down program, the first mortgage will still be resold to government-sponsored enterprises, while the second-lien loan will be held by UWM, Wilner said.
The program is ultimately “really good” for people who can swap their rent for a mortgage and make those monthly payments comfortably, Lederer said, because “it can be the foothold that you need to get into homeownership.”
While such programs “have the potential to really open up homeownership,” Lederer added, they can also be a major issue down the line for home buyers who don’t understand what, exactly, they are getting into.
