Published February 2002

Zero-down loans offer benefits for buyers, sellers

By Bryan Corliss
Herald Economy Writer

Scrape out the loose change in your couch and you’ve got enough to buy a house.

Really.

Zero-down home loans do exist, mortgage lenders say. And while the programs won’t work for every situation, they’re flexible, available and remarkably catch-free.

“Anybody can do it,” said Ron Turner, a real estate agent and mortgage loan officer with Edmonds Home & Loan. “There’s no tricks to it, and it’s for real.”

Of course, like anything else that has to do with banks and real estate, there are some strings, and truth be told, you’ll need anywhere from $500 to $2,000 cash on hand to take advantage of a zero-down program. But the paperwork can be fairly simple — as little as two sheets of paper. And much of the cash you put up initially you’ll get back at closing, lenders say.

Zero-down loans have been available to military veterans for a long time. But they’ve only been available to most people in Washington for about the past four years, lenders said.

They’re the result of a collaboration between private foundations dedicated to helping people find homes and the Federal Housing Administration.

FHA-backed loans are the vehicle of choice for many first-time homebuyers. They require only a 3 percent down payment, compared to conventional loans that call for anywhere from 5 percent to 20 percent.

FHA loans also are more lenient in their credit requirements than conventional bank loans.

But even 3 percent can be too much for some buyers in a place like Snohomish County, where the median home price has cracked the $200,000 mark — requiring a $6,000 down payment.

“There are a lot of people who are trapped in rent,” said Tony Fischer, Vice President of Guaranty Mortgage Co. in Everett. “They can qualify for a loan, but they can’t save enough money.”

Those are the people zero-down programs are designed for. “They’re real popular,” Fischer said. “We do a ton of them.”

There are several zero-down programs — Nehemiah, Hart and Ameridream, to name a few — used by local lenders. Each has its own procedures. But in general, they work like this:

The homebuyers get pre-approved for a mortgage, proving they’ve got a solid credit history and steady income potential. They work with a real estate agent to find a suitable house.

Once they’ve got a place in mind, the agent approaches the would-be seller to see if they’ll participate in a zero-down program. Under that, the seller gives enough money for the down payment — 3 percent of the purchase price plus a little extra to cover fees — to a third-party, not-for-profit trust.

The money will eventually come back to the seller, but the action essentially knocks 3 percent off the asking price.

When the deal is ready to close, the trust issues a check to the buyers, who use it for the down payment.

Buyers do need to come up with some cash. Some programs require the buyer to still put 1 percent down. Others require buyers to pay for appraisals or other closing costs up front, though the money may be returned at closing.

“They’re going to have to front some costs, but they’ll get most of that back,” Turner said.

Most people need between $500 and $1,000, he said. But most renters will be able to come up with that much through the simple fact that there will be a 60-day gap between the time they make their last rent payment and the day their first mortgage payment is due. (Rents are due at the first of the month, and mortgages are due at the end.)

The benefit to the buyers is obvious — a chance to buy a house with no more savings than you’d find in a child’s piggy bank.

“You don’t have to pay anything out of pocket,” said Brent Finch, who with his wife, Shawna, bought their Mountlake Terrace home in October with a zero-down program.

The couple couldn’t have bought the house otherwise, he said.

Not all sellers are interested in participating, but there are some real benefits to them as well, lenders and real estate agents said.

For starters, it can greatly increase the pool of possible buyers. That makes it “a lot easier to sell,” said David Rucker, an agent at Preview Properties.

It’s a particularly good option to consider if you’re selling a fixer, or if you’ve been sitting a long time on a house, said Debra Heuring, an agent and loan officer with Edmonds Home & Loan.

“To them, it’s worth it so they can be done with the thing,” she said. “It’s not a slam dunk, but it’s something you can offer people.”

Most sellers put their initial asking price a few thousand dollars higher than they expect to get anyway, Rucker said, so most can afford to come down 3 percent. If they’re not willing, sometimes buyers will agree to a higher purchase price.

“There’s probably a way to get it done,” Rucker said.

The programs are becoming better known, but not every lender, real estate agent or customer knows about them, Turner said.

“There are so many doubters,” he said. “Nobody believes it.”

Back to the top/February 2002 Main Menu