Sep 08

A good article on the current try at zero-down mortgages.

Why “zero-down” mortgages are gaining ground

Details: Bank of America’s “zero down payment” loans are a bit of a misnomer. They do technically require a down payment, but the bank is offering grants of as much as $15,000 to cover it.

So buyers don’t have to come up with the down payment, but they are not borrowing the entire cost of the home, and they wind up holding some measure of equity right off the bat.
That’s distinct from the zero-down loans that, along with questionable underwriting standards, helped make such a mess in the run-up to the Great Recession.

It is great that more folks have the opportunity to buy homes and create equity and stability. However, for these programs to achieve what they set out to, they cannot facilitate the purchase and then leave the new homeowner to fend for themselves, but instead also provide resources for the buyer’s future success.

A significant problem with these first-time buyer programs is they focus on the sale and do not offer ongoing support for the buyers, many of whom are generational renters. When something needs repair, even if you broke it, call the landlord or the city. Problems with neighbors, move. Financial issues, stretch out rent payments as far as you can. Landlords in lower-income neighborhoods are often the unwilling lender, the financial rubberband.

A prime example: Around 2006 or 07, one of our long-term, great renters bought a home. A couple of years later, she was in our lobby crying, ‘Would we rent to her again?’ Child Protective Services threatened to take her kids because one of them mentioned to their teacher that they had not had hot water in months. The former tenant told me she called Blau Plumbing to fix it. They told her the water heater was bad and needed replacing at $900, which she could not afford. I sent one of my maintenance guys out. The water heater was maybe five years old, in good shape, and needed a $6 thermo coupling.

A well-designed program would have had a helpline that the new homeowners could call for advice.

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