Thousands of Homebuyers Flock to New 0% Down Payment Mortgages

Thousands of homebuyers have taken on United Wholesale Mortgage's (UWM) new 0% Down Purchase mortgage since the Pontiac-based company launched the product a month ago, a spokesperson for UWM told Newsweek.

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The mega mortgage lender launched in mid-May a program offering qualifying borrowers a 3 percent down payment assistance loan up to $15,000 to purchase a home, allowing people to get on the property ladder without upfront down payment. It's a second loan, in addition to the mortgage, which does not require a monthly payment and does not accrue interest.

Mortgage rates are still hovering around the 7 percent mark as the Federal Reserve has not yet changed its target rate range so far this year—much higher than many homebuyers feel comfortable with. As of June 13, the 30-year-old fixed-rate mortgage was 6.95 percent, according to Freddie Mac. The 15-year-old fixed-rate mortgage was 6.17 percent.

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"We've seen tremendous success with the program so far," a spokesperson for UWM told Newsweek. "Consumers across the country who were sitting on the sidelines because they didn't have enough for a down payment are now achieving their dream of homeownership."

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The company said it's "excited to see this momentum continue as more and more borrowers learn this is an option for them when they connect with an independent mortgage broker."

UWM said its program "is making homeownership a reality for consumers across the country who didn't think it was possible, and giving independent mortgage brokers and their real estate partners a competitive edge in a high-rate environment."

Saving for a down payment continues to be one of the biggest hurdles a homebuyer faces. "By removing this barrier," a spokesperson for UWM said, "we have seen tremendous success."

As UWM is a wholesale lender, borrowers cannot go directly to the company for a loan; they must refer to Mortgage Matchup to find an independent mortgage broker to see if they qualify for the program.

Eligible borrowers must have an income that's at or below 80 percent of the area median income for the address of the property they're buying or be a first-time homebuyer.

They would then receive a 3 percent down payment assistance loan up to $15,000 in the form of a second lien loan, which borrowers will have to repay when refinancing their mortgage or pay off said mortgage.

This means that UWM's loan is not free money: it will have to be repaid eventually. Borrowers have some flexibility, as they can choose when to repay the loan and how often to make payments, as long as they pay it in full by the end of the loan term.

The amount of assistance received by UWM is calculated based on the lower of the appraised value or the sale price of the property a borrower wants to buy.

Some experts are warning that zero-down mortgages can be a risky strategy for first-time homebuyers and those with modest incomes, with Jonathan Adams, an assistant professor in the finance department at Saint Joseph's University, telling CNN that such programs remind him of subprime loans ahead of the 2008 crash.

According to Adams, UWM's program has "all the features that made subprime bad," and borrowers could suffer if the housing market suddenly cools and prices drop, as they would be stuck with owing more than their home is worth.

"One of the lessons of the subprime crisis was that you are not doing any favors to borrowers by making it too easy to borrow," he told the news channel.

Correction 06/19/24, 9:50 a.m. ET: The article previously referred to Mortgage Matchup as an independent mortgage broker.