A small savings bank in Michigan, Flagstar Bank, has come up with a genius, innovative new mortgage product that they believe is going to be great for their investors and low-income housing buyers: the "zero-down mortgage." What's better, Flagstar is even offering to pay the closing costs of their low-income future mortgage debtors. Here's more from HousingWire:
Under the program, Flagstar will gift the required 3% down payment to the borrower, plus up to $3,500 to be used for closing costs.
According to the bank, there is no obligation for borrowers who qualify to repay the down payment gift.
The program is available to only certain low- to moderate-income borrowers and borrowers in low- to moderate-income areas throughout Michigan.
Borrowers would not have to repay the down payment or closing costs. But a 1099 form to report the income would be issued to the Internal Revenue Service by the bank. So the gifts could be taxable, depending on the borrower’s financial picture.
Flagstar said borrowers who might qualify for its new program typically would have an annual income in the range of $35,000 to $62,000. The sales price of the home -- which must be in qualifying areas -- would tend to be in the range of $80,000 to $175,000.
Think it's too good to be true? Lakeshia Wiley of Detroit's west side begs to differ...she recently went through Flagstar to purchase her new home and only had to come up with $350 of her own money. Per the Detroit Free Press:
Lakeshia Wiley, 35, said she wouldn't have been able to buy her first home without the Fifth Third Down Payment Assistance program and two other grants, including one from Southwest Solutions.
The brick home, built in 1951, is on Detroit's west side, needed very little work and was priced at $50,000.
"I'm very excited every time I think about it. It's beautiful. I love it," Wiley said.
Wiley never expected to be able to buy a home, though, because she has had a hard time saving for a down payment.
"I didn't think I'd be able to do it," said the single mother who has two sons, ages 17 and 10, and a daughter, age 6. She works at a Detroit pharmacy.
Thanks to the down payment assistance and the grants, Wiley was able to buy her home in April. She had to bring less than $350 to the table at closing.
The Flagstar program is available in 18 counties in Michigan, and could be used for certain homes in Detroit and Flint, along with other cities.
Of course, we would highly encourage Flagstar to take a look back into ancient history for case studies on what happened the last time banks started peddling "innovative" mortgage products. Here's a summary of the Lehman Brothers case study:
Ironically, South Park also did some fascinating research on the topic: