Good news for first-time homebuyers! Downpayments for houses may not be necessary now that the United Wholesale Mortgage (UWM) has announced a program fit for their budget, offering 0% downpayment for mortgages.
The program focuses on providing first-time homebuyers ease in buying their first houses without any downpayment needed. It aims to help individuals earning below 80% of their location’s median income.
Moreover, eligible buyers can receive a second-lien loan of up to $15,000 for downpayment assistance. That also comes with no interest or monthly payments. On top of that, buyers can choose their payment schedule for their secondary plan, which they can pay in full by the end of its loan term. It also comes upon paying off the first mortgage or through refinancing.
Let’s dive into what this program means and what first-time homebuyers should expect from it.
Homeownership Is the Goal
UWM’s COO, Melinda Wilner, expressed the company’s commitment to homeownership. Previously allowing 1% down payments, UWM expected increased borrower volume with the new zero-down program.
According to the IMF, poor underwriting was the main cause of the downfall of the 2008 U.S. subprime mortgages. Compared to other riskier loan options, Wilner reassures that the new program will follow stricter guidelines.
Highlighting the current housing demand and supply imbalance, Wilner emphasized the improved underwriting standards and noted President Biden’s push for Congress to offer down-payment assistance to first-generation homebuyers.
Of course, as we’ve seen with other similar programs in the past, pushing leverage to levels that can promote buying activity that shouldn’t happen doesn’t typically end up well. We’ll have to revisit the success or failure of this program 5 or 10 years down the road with a post-mortem. Suffice it to say, many aren’t so enthused about programs like this becoming more mainstream.
What to Know About Homeownership These Days
According to the data from the National Association of Realtors, first-time buyers often put down around 8% of the average downpayment. In early 2024, this comes in at roughly $26,000. Local government programs offer 0% for first-generation homebuyers with interest-free loans.
According to Anneliese Lederer from CRL, unlike some government programs, UWM’s terms don’t specify whether loans are forgivable.
Bank of America (NYSE:BAC) also offers zero-down plans for home buyers in select communities. Wilner stated that while down payment assistance isn’t new, UWM’s program simplifies the process for brokers and consumers.
Various entities have their own guidelines and requirements, making navigation difficult, a challenge Freddie Mac addressed last year with a program to help lenders and buyers understand these options.
How This Will Affect the Housing Market?
Amidst high interest rates dampening home-buying demand and limiting housing inventory, the UWM program is introduced. With mortgage rates exceeding 7%, current homeowners, many enjoying rates under 4%, lack incentives to sell and engage in bidding wars.
Fannie Mae forecasts a slowdown in housing activity in 2024, projecting a year-end average mortgage rate of 7% and a subsequent drop in existing home sales to 4.19 million.
In 2022, UWM ranked as the second-largest mortgage originator, per a recent CFPB report. Under UWM’s zero-down program, the primary mortgage gets resold to government-sponsored enterprises, while UWM retains the second-lien loan.
Lederer noted that while these programs can facilitate homeownership transitions from renting to mortgage payments, there’s a risk for buyers unfamiliar with the implications. I’m of the view that such programs could be a trap for those who can’t afford to buy homes in this overheated market. We’ll have to see, but sometimes the most insidious pieces of a crash come from programs that had good intentions to start with.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
