The zero-down mortgage? It’s generating a comeback

Buyers may soon be able to bring less to closing. These types of mortgages were blamed for precipitating the housing crisis years ago, but major lenders are giving the no- and low-down payment mortgage another shot.

The zero-down mortgage? It’s generating a comeback

Several major lenders are reportedly offering loans with just 1% down. Navy Federal, the nation’s largest credit union, offers its members zero-down mortgages in amounts as much as $1 million. NASA Federal Credit Union markets zero-down mortgages as well.

Quicken Loans, the third highest volume lender, offers 1% down payment options, as does United Wholesale Mortgage. And the Department of Veterans Affairs has offered zero-down loans to eligible borrowers for many years.

Also, Movement Mortgage, a large national lender, has introduced a financing option which offers eligible first-time buyers with a non-repayable grant of up to 3%. As such, applicants can qualify for a 97% loan-to-value ratio conventional mortgage, which happens to be basically zero from the buyers and 3% from Movement. For example, on a $300,000 home purchase, a borrower could invest zero personal funds with Movement providing $9,000 down. The loan also allows sellers to contribute toward the buyer’s closing costs.

Up to now, the delinquency rates on these low- to zero-down payment loans are actually minimal, according to lenders. Quicken Loans says its 1% down loans have a delinquency rate of under one-quarter of 1%. United Wholesale Mortgages told The Washington Post that it has had zero delinquencies from the borrowers on its 1-percent down loan since debuting it last summer.

For Movement’s new loan product, the lending company will originate the loans and then sell them to Fannie Mae, which remains under federal conservatorship. Fannie officials released the subsequent a statement:

“(We’re) committed to working with our customers to increase affordable, sustainable lending to creditworthy borrowers. We continue to work with a number of lenders to launch (test programs) that require 97 percent loan-to-value ratios for all loans we acquire.” They add that there “is no commitment beyond the pilots,” which are “focused on reaching more low- to-moderate income borrowers through responsible yet creative solutions.”

During the housing crisis, zero-down loans were among the biggest losses for lenders, investors and borrowers. However, housing experts say the latest versions differ from years ago. Applicants must now demonstrate the capability to repay what’s owed. Additionally they must have stellar credit histories and scores, and lenders demand a lot more documentation to demonstrate borrowers are in good standing.

Also, many of the programs are charging higher rates of interest. For example, Movement’s rate for its zero-down payment option in mid-June was 4.5% to 4.625%, in comparison with 4% for its standard fixed-rate mortgages.

Some critics claim that the borrowers who really could benefit from such options aren’t able to qualify for them. Paul Skeens, president of Colonial Mortgage Corp. in Waldorf, Md., told The Washington Post that “it seems like people without excellent credit scores and three months of [bank] reserves don’t qualify.”

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