Are zero-down mortgages coming back?

(NewsNation) – Many Americans are struggling to afford a home, and today’s typical down payment of $56,000 presents a major hurdle.

One of the nation’s largest mortgage lenders is trying to lower that barrier, announcing a new 0% down mortgage program last month. Mortgage United Wholesale (UWM) said the program aims to “help more borrowers become homeowners without a down payment.”

Under the program, eligible borrowers will receive a 3% down payment assistance loan of up to $15,000. This loan will not accrue interest or require a monthly payment. Instead, it must be repaid at the end of the mortgage term or when the loan is refinanced or the home is sold.

While that may sound appealing to some, it doesn’t solve today’s problem of high interest rates, said Lance Lambert, co-founder and editor-in-chief of ResiClub.

“Doing 0% down isn’t necessarily going to draw that many buyers back into the market because the thing that’s keeping them out is they can’t afford that monthly payment,” Lambert told “NewsNation Now” on Wednesday.

One reason why down payments are so high is that home buyers are spending more money to offset the pain of higher interest rates. Those who can afford it are bypassing credit altogether. Earlier this year, the share of all cash buyers reached its highest level since 2014.

For this reason, Lambert said he does not expect a boom in 0% down mortgages. This may bring a sense of relief to those who hear zero down and immediately think of the 2008 financial crisis.

“The difference between today’s market and the 2005-2006 market is that we’ve passed a lot of qualified mortgage rules,” he said. “Even if someone puts 0% down, they still have to meet strict debt-to-income ratios.”

What is a zero down mortgage?

A zero down mortgage is exactly what it sounds like: a home loan that requires no money down at closing. Generally, buyers will pay anywhere from 5% to 20% down to lower their monthly payments, but with a zero-down mortgage, buyers are financing 100% of the home’s purchase price.

The easiest way to get a zero down mortgage is through a government backed loan. Those who qualify for a VA loan or USDA loan can buy a home with no money down.

What are the good ones?

Zero-down mortgages can be attractive to those who can keep up with higher monthly payments but don’t have tens of thousands of dollars saved up for closing.

“The person who [lenders] are trying to attract that entry-level buyer,” Lambert said.

0% down can allow first-time buyers to own a home sooner than they would have been able to without having to save a lump sum. In fact, down payment options are a way for people to enter the housing market who might otherwise struggle to do so.

What are the cons?

The biggest downside to a zero down loan is that homeowners start out with no equity, which means a downturn in the housing market can put them underwater, owing more than their home is worth. .

Not putting any money down also means you’re likely to pay a higher interest rate, which compounds over the life of the loan. With today’s elevated mortgage rates, this can end up being tens of thousands of dollars more over time.

Watch the full interview with Lance Lambert in the player above.