Is UWM's Zero-Down Mortgage Right For You? Here's the Analysis

United Wholesale Mortgage, or UWM, made waves in May 2024 by announcing its zero-down home purchase program.

With it, says UWM, homebuyers receive a down payment assistance loan for 3% of the home price, up to $15,000, potentially covering the buyer's entire down payment requirement.

But is it the best program for homebuyers? For some, it could be. For others, there are better options available. Here’s what to know about UWM’s 0% down loan.

How It Works

UWM’s program issues you a second mortgage for 3% of the home’s purchase price. The loan acts as your down payment. The end result is a zero-down loan.

The company essentially finances the down payment to reduce your upfront cost.

For example, if you buy a $300,000 home with a traditional 3% down loan, you must come up with $9,000 in cash, not including closing costs. This program lets you finance that $9,000.

The secondary financing is at relatively good terms. There’s no payment required, although you can make payments during the loan term. Even better, it’s a 0% interest loan.

Some Drawbacks

The program is attractive, but not perfect.

Could Make Refinancing Harder

You must pay back the entire secondary loan if you refinance. Homebuyers will want to refinance in the few years if rates fall. They may be unable to if they can’t pay off the second mortgage at that time.

The same applies if you sell. Unless the home appreciates dramatically, you could owe money at the selling closing table.

This program may be best for those who could make a down payment, but would rather preserve the cash for the time being. They could place those funds in a savings account and use if they need to refi or offload the home unexpectedly.

Income Limits and Credit Score Requirements

If you have a credit score between 620 and 699, you must make no more than 80% of your area’s median income. It could be hard to be approved for a large enough home price at this income level. You can check local median incomes with Fannie Mae’s tool.

To avoid an income limit, you must be a first-time buyer and have a credit score of 700 or higher, and meet other Freddie Mac HomeOne® and UWM guidelines.

Homebuyers with low or very low scores may be more easily approved for an FHA loan plus down payment assistance. UWM's program is based on harder-to-qualify-for conventional financing.

May Not Cover Down Payment Requirement For 1st Mortgage

This “zero-down” program is technically an add-on feature to the conventional 3% down program. UWM loans you the 3% required for the first mortgage.

But the second mortgage may not be enough. The maximum second mortgage amount is $15,000, which is 3% of $500,000. If you purchase a home costing more, you will need a down payment.

For example, conventional loans require $19,500 down on a $650,000 home. So you would need $4,500 in cash on top of UWM’s loan for the full 3% down.

The Program Doesn’t Cover Closing Costs

You will still need a decent amount in savings to qualify. This isn’t a “zero out-of-pocket” loan.

UWM’s program reduces required upfront funds but doesn’t eliminate them. You’ll still need to pay out-of-pocket for things like title, appraisal, escrow, and loan fees – prepare for at least $10,000 for the typical home.

Requirements for the Program

Keep in mind that UWM is not a direct lender. You must find a mortgage broker that is approved to work with the company. You can find UWM partner brokers on the company's site.

Here are general requirements for UWM’s zero-down program. Keep in mind that this is a summary, and more qualifications may apply.

• Work with a mortgage broker that is UWM-approved to issue these loans

• 45% or less debt-to-income ratio

• Loan amounts below $766,550

• Conventional mortgage insurance required

• With a 620+ credit score, make 80% or less of your area’s median income

• First-time buyers with 700+ credit score do not have to meet income limits

• Maximum $15,000 second loan; additional down payment required if purchasing a home over $500k

• Borrowers can make payments on the second mortgage, but don’t have to

• Second mortgage must be paid off upon refinancing, selling the home, or paying off the first mortgage

• Verify enough assets for closing costs and any required reserve funds

• Meet additional requirements for Fannie Mae’s Home Possible® or Freddie Mac’s HomeOne, and UWM guidelines

Alternatives to UWM’s Zero-Down Program

UWM’s CEO said in a press release, “No other wholesale lender in the country is offering this.” While it’s true that no other lender offers these exact terms, there are very similar alternatives in the marketplace.

Lender Down Payment Assistance (DPA) Programs

Wholesale lender EPM offers the Empowered DPA program, a 2 or 3.5% forgivable grant (not a loan) toward the down payment. The program is based on the FHA loan. Rates and fees could be higher than UWM’s program, however, since the DPA is forgivable.

Another wholesale lender, Forward Lending offers the Fast 100 loan. The lender issues a second mortgage equal to 3.5% of the home’s price to cover the entire down payment on an FHA loan. No payments are required on the 2nd mortgage, and it’s forgiven after 10 years.

These are just two examples, but do some searching and you’ll find many lenders offering down payment financing or outright grants.

Local DPA

The best programs are likely local DPA prorams. There could be programs offered by your state, city, and county. Here are seven places to look for DPA.

Employers and Non-Profits

Your employer or a local non-profit might offer you better DPA terms than do lenders. Lender DPA programs typically require some sort of payback, or a loan due with interest. But employers and non-profits are motivated by other goals.

For example, employees of the University of Southern California can receive monthly grants totalling up to $50,000. This is to enable staff to live close to campus.

Likewise, non-profits offer programs to encourage homeownership and wealth-building among lower income members of the community.

Is UWM’s Zero-Down Home Loan Right for You?

UWM’s program is worth checking out. It could reduce your cash outlay by up to $15,000 when buying a home.

However, it’s not the only game in town. Research all the down payment assistance programs available to you. You might find something much better for your situation.