The Good The Bad and The Ugly on Zero Down Payment Mortgages

Below is a link to an AP story discussing the NEW proliferation of No Money Down Mortgages.
No downpayment mortgages have largely disappeared as a financing option from private lenders. But they are still available - and growing more popular - using existing FHA programs in conjunction with nonprofit groups' downpayment assistance programs.

The article mentions the "Not For Profit" organizations that help buyers with little or no funds get a loan. We have been seeing more of these as well. In some cases we have seen the "Not for Profit" charge $500 to $750 to basically convert a SELLER's contribution to the buyer's closing into a $5000 "gift" which is handled differently for the purposes of qualifying for a mortgage than simple seller contribution to closing is. Many lenders have pretty strict limits on the amount the seller can contribute to the buyer's costs but these programs seemingly overcome that limit - at some expense of course.

So what's good, what's bad and what's ugly. Well good from a first time buyer's perspective is that yes there does still seem to be, even in this new era of tighter lending criteria, a way to get into a home with little or no money. Also good for some sellers desperate to get SOLD and Realtors who are desperate to get paid (and make no mistake we like to get paid!) - so these "creative" steps get deals done.

Bad is that in tightening up these requirements we have now created this little cottage industry that converts seller contributions at what looks to us as a cost of over 10% of the amount contributed. The very nature of this seems to be to circumvent some restrictions AND it either ends up costing the buyer more or reducing the net for the seller.

The Ugly? Well the ugly is probably one of the "remains to be seen" issues but clearly the largest number of mortgage defaults are when buyers no longer have ANY equity so they don't feel compelled to keep paying should rates rise or should market conditions further soften.  Statistically, in a lot of areas of the US right now, prices continue to fall. Are all these new no money down loans creating just another foreclosure spike somewhere a little further down the road AND this time it won't be private lenders exposed but the US Taxpayers.

Here's a link to the article, you may need to copy it into your browser address window:

http://www.floridarealtors.org/NewsAndEvents/n1-062508.cfm

- Mike W.

MORTGAGE RATES

Rates on 30-year mortgages dropped this week to the lowest point in four months – an average of 6.31 percent for FRMs – providing some relief for people hoping to refinance or buy a new home.

Read the full story:
http://www.floridarealtors.org/NewsAndEvents/n1-091407.cfm

Stating the obvious, low mortgage rates allow people to afford more home. Also in this time of lots of people being stuck in those many times nasty "Option Arms" here's a chance to get out and refinance at low rates.  Those Option payment ARMS were an OK (note I didn't say a GOOD idea just an OK idea) when homes were surely appreciating. But now with the market not only flat but in many cases falling they can be downright dangerous. When you decide to send the smallest payment option in any given month you just know that that payment doesn't cover your principle, interest, taxes and insurance. That means that when it doesn't the additional interest you didn't pay but should of still accrues - and your unpaid balance is going UP (that's called Negative Amortization!). Even while the market price of the house might be going DOWN.  So take the news that interest rates are falling and if you don't have some awful prepayment penalty (and if you DO have an awful prepayment penalty you should be wary of the persons who put you IN that product in the first place!) - look at refinancing now to a lower FIXED (see that word in CAPS - that's FIXED) rate.  - Mike W