Zero Money Down Loans are a good program --- Really!
I recently read an article by CBS Money Watch that was talking about a developer in Florida who is offering homes for as little as $1.00 down payment. I thought, duh. I do that every day with Rural Development loans except it's $0.00 down payment!So I figured this article would be saying what an awesome program it is for a homeowner, right?! I mean you can't even get a sweet tea at McDonald's for $1.00 with tax!
So as I continued to read this article I realized that the gentleman writing it not only called FHA the Federal Housing Authority (it's the Federal Housing ADMINISTRATION) but he went on and on about what a terrible idea this program is. He explained that by letting people pair an FHA loan with another form of down payment assistance (resulting in no money down) then a homeowner will have more reason to walk away from their home.
This is absolutely untrue. In reality the default rate is HIGHER for borrowers who put down 3.5% vs those who put down nothing.
Here are the numbers for 2009 -
FHA (3.5% down) delinquency and foreclosure rates - 14.5 percent for low-income borrowers and 3 percent for moderate-income borrowers.
Compare that with Rural Development (Zero down) delinquency and foreclosure rates - 12 percent for low-income participants and 1.7 percent for moderate-income participants.
So it would seem this fellow didn't do his research did he? He also had a quote from an ECONOMIST from Texas reiterating what he just said. That it's a terrible idea and will encourage people not to pay their mortgage bill. I read a lot of the comments from folks around the country who seemed to echo the sentiment as well. "How stupid are these people?!" "I've got $3.00 can I buy three houses?" "These low life people need to save their money up before they buy a house."
Not to mention, there are Underwriters who will take a look at the borrowers income status and history. They will then decide if they are likely to default or not. In the past couple of year the standards have become very tough, resulting in more people getting denied because they thought they would "pull one over on the system."
This is what makes me so upset about those who THINK they know about my industry and those of us who actually WORK in my industry. Just because you work for "CBS Money Watch," you interviewed ONE "Economist" and you got your article printed on the Yahoo! homepage - doesn't mean you know what you are talking about! The people who put out articles like this in my mind look like this guy.
There are SO MANY people that read something and BELIEVE IT! Even if it isn't true.
It gives persons like myself who are LICENSED by the National Mortgage Licensing System to talk with people about what loan options would suit them the best a bad name. If you have any type of question about what you might have "heard from a friend" or "read on the internet" PLEASE ask me.
Like the saying goes "If you want the truth, go to the source." And that source... Is ME!
Statistic citing: http://library.hsh.com/articles/government-programs/100-percent-mortgage-financing-usda-rural-home-loans-updated
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