Just when you thought the days of zero down-payment loans were gone forever, a nonprofit is testing a new concept to offer low-to-moderate-income home buyers the chance to secure a 15-year mortgage with little to no money down.
The Wealth Building Home Loan (WBHL) creates a path to homeownership for first-time buyers, low-income buyers and those burdened by student debt but earning a solid income.
The WBHL has a generous credit requirement, as income is weighed more heavily than FICO scores. It also offers a chance to build equity at a faster clip than a traditional 30-year mortgage, according to one of its creators, Edward Pinto of the American Enterprise Institute International Center for Housing Risk.
“In the first three years of a WBHL, 77% of monthly mortgage payments pay off principal, creating huge amounts of equity,” Pinto said.
The 30-year fixed-rate mortgage—which has become the industry standard—attributes 68% of each mortgage payment to interest in the same period, according to Pinto.
“This will be a game-changer,” said Bruce Marks, CEO of the nonprofit Neighborhood Assistance Corporation of America (NACA), in a statement. “The majority of the mortgage payment will now go to the equity in the home effectively providing debt-free homeownership.”
Home buyers can convert their down payment to buy down the interest rate. If they don’t have money to put down, they can use a 3% seller concession to buy down the interest rate to near zero. For every 1% paid upfront, buyers can get a half percentage point discount in their interest rate, twice the industry standard for rate buydowns. Bank of America will hold the 15-year mortgage loans and subsidize the interest rate buydown.
Monthly payments are a bit higher with the Wealth Building Home Loan, but because the term is truncated, the buyer will own the property free and clear in a shorter time.
NACA is tasked with providing the loan, while Bank of America and Citigroup are funding the loans. The WBHL is only available through NACA. The nonprofit has 37 locations nationwide and is using Charlotte, NC, as the initial test market.