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Did Home-Buying After the Housing Crisis Just Get Easier?

Tue Jul 26, 2016 by on Florida Law News

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Is this how the real estate bubble starts anew? With interest rates at historically low rates, Fifth Third Bank (5/3 Bank) is joining the growing list of mortgage lenders that are featuring low down payment mortgages. Except, Fifth Third Bank is now offering – for qualified borrowers – a mortgage with zero down payment! 

Homeownership is The American Dream

Here’s how it’s possible, again. The program called the Down Payment Assistance (DPA) Program, offers 3% of the purchase price in down payment assistance, up to $3,600.00, for those who are purchasing a home in a designated underserved low-income area or are low-income borrowers. The program works in conjunction with Freddie Mac’s Home Possible Advantage(sm) Mortgage which allows borrowers to buy a home with a 3% down payment and reduced mortgage insurance premiums.

The reality

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Eyes Wide Open: Here We Go Again!? Copyright:icreative3d/123RF Stock Photo

By offering a zero down payment home loan, Fifth Third Bank is completely removing one of the biggest hurdles to homeownership. But homeownership is about more than a low down payment. Rather, the affordability of a home is about the long term commitment to those pesky monthly payments, while still having money for other expenses, and to live. Borrowers with lower income, weaker credit, and less assets are less likely to afford a home and pose the risks that resulted in the real estate bubble. By targeting low-income borrowers and areas, the program re-creates the same dangers that contributed to the housing crisis. Except that borrowers under this program will be the first to lose their homes if the bubble pops and a new recession occurs.  

The outcome

While the program can be great for some borrowers, it is mostly just aspirational.  Borrowers targeted by the program are given an opportunity for homeownership, but it is easy to bite off more than you can chew! If borrowers have no skin in the game or equity in their house, they will be the first to walk away. The program is literally a crapshoot! If there is any hiccup in the economy, borrowers will lose their house, pride, and credit. The program is good to get you in the game, but may help you lose the game in the long run! As always, keep your eyes peeled and know all of your options.

Tags: 3% down, home buying, housing crisis, mortgage rates, real estate bubble, zero down payment