Zero down payment mortgages and similar programs seem to be gaining popularity on Main Street lately.
Bank of America announced on August 30 that it is launching a pilot program called the Community Affordable Loan Solution, which offers mortgages that require no closing fees, down payments or minimum credit scores. People in predominantly Hispanic or black neighborhoods in Charlotte, North Carolina; Dallas; Detroit; Los Angeles; and Miami who meet specific income requirements can access the program.
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In March, TD Bank launched a similar program that includes a $5,000 lender that eligible borrowers can use to complete a home purchase or make down payments. According to the bank’s press release, eligible borrowers must meet certain credit and income parameters and reside in a participating market.
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JPMorgan Chase also expanded its grant program in February 2021 to provide $5,000 toward closing costs and down payments to homebuyers buying homes in predominantly minority neighborhoods.
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The most recent data from the National Association of Realtors shows that there was a significant racial divide in home ownership in 2020. White households had home ownership rates of approximately 72.5%, while Hispanic and black households had home ownership rates of 51.1% and 43.4%, respectively. .
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However, zero down payment mortgages have some drawbacks, according to Bankrate.com financial analyst Greg McBride.
“The downsides are that the home buyers are very dependent on further price increases to build a meaningful equity stake and without that there won’t be enough equity to pay the closing costs if plans change and have to sell them in the first few years. he told FOX Business.
He also told FOX Business that this is the “wrong end of the real estate cycle for no-deposit mortgages.”
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“The risk to borrowers has increased with the rise in house prices,” McBride said. “If home prices stagnate or even fall, a non-deposit loan could cause the buyer to fail because they won’t have much, if any, equity stake in the home.”
That increases the likelihood of default if the borrower wants to leave the house, he said.
The housing market has cooled down in recent months. According to an analysis by Redfin, the number of home sales cancellations reached a two-year high in July as about 16% of homes contracted that month were called off. Sentiment among builders also reached a low point since May 2020.
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