NEW Bank Of America's 0% Down, Zero Closing Cost, No Credit Score Mortgage

Certified Mortgage Advisor
NMLS 1701021
Published 
September 12, 2022

2008 Programs or the 2022, which one is better?

Bank of America just came out with a new mortgage program that makes it a lot easier to qualify for a mortgage. And a lot of people have a lot of questions about it, comparing it to programs in 2008. And it's a really lax program, especially with how the housing market is existing right now with increasing home values and increasing interest rates.

Its goal is to make access to mortgages and homeowners easier, but it's drawing a lot of questions, especially amidst, you know, Bank of America is still dealing with a 2.7 billion lawsuit from the 2008 housing crash. And the bond insurer on this lawsuit is arguing that they systematically approved shotty mortgages and pushed the risk onto investors and insurers.

So I wanna explain this program if this is a program you want to take advantage of. I have no affiliation with Bank of America. I have not talked with them. I just wanna explain what's out there and what we know so far, so you can make a wise choice on if you want it.

Community Loan Solution

So it's called the Community Affordable Loan Solution. Big key points: 0% down, $0 down, another kicker, $0 closing cost.

Zero Down and 0 Closing Cost

Now there are a lot of other zero-down mortgages, things like USDA loans. You have VA loans, and then you also have a lot of down payment assistance programs with conventional, FHA loans that can offer 0% down.

What's different here is that there are no closing costs likely what is going to be included are things like, prepaid items. So your homeowner's insurance likely is going to be included in that's usually not, a closing cost item or taxes. Those are likely going to be included here. It's unclear if Bank of America's going to give credit, but with most programs that offer 0% down, usually, you still expect to pay closing costs. This program is saying that you don't have to.

No PMI

Also, there's no PMI, which is the monthly mortgage insurance, and Private Mortgage Insurance which is usually put on loans that have less than 20% down to protect the lender against default.

No minimum credit score

Now, something interesting that they're doing here is no minimum credit score. Usually, for a conventional loan, you're going to expect a 620 minimum FICO credit score with FHA loans. You're going to expect the actual minimum to be 500, but most lenders, usually are around 580.

Manually Underwritten Loans

Now what they do is they're going to use, what's more, common on what are called Manually Underwritten loans, which are loans that are viewed with a little bit more scrutiny. And what they do is instead of looking at your credit score, which arguably isn't the best indicator of, if you can pay back a mortgage, they're going to use your rent history, utility history, phone history, and any other kind of bills like that to build up a profile to see, do you repay back, expenses or things like rent?

And again, this is common with manual underwriting. And so that's what they're going to be doing here instead of using a credit score.

Only for first-time home buyers

Now, this is only for first-time home buyers. And a first-time home buyer is someone who has not been on the title to a home in the past three years. Now, this is where things are getting a little bit tricky and we're seeing a lot of people having mixed feelings about this program.

Base on your income and location

Now, this is a pilot program. They're just testing this in certain markets, but this is directly from Bank of America. They said this is available in designated markets, including certain black African and/or Hispanic-Latino neighborhoods in Charlotte, Dallas, Detroit, LA, and Miami. Okay. So this is not available all over the place yet.

This is just a test program happening in these neighborhoods. Okay. And they're likely gonna be using the census track to determine these neighborhoods. Now, one key note here is this is not for one ethnic or racial group. This is for primarily the neighborhood. So this is for all borrowers. But it's gonna be based on your income and the location of the home.

Primary residence only

You can't buy an investment property with this. So, some of the requirements here, you still do have to qualify with your income. Okay. Even though it's 0% down, no closing costs, no PMI. You still will have to actually be able to afford it. Bank of America hasn't said what those, requirements are, but it's likely they're going to be using the debt-income-ratio.

This is the same ratio that almost every other loan uses to determine. If you can pay back a loan, I'm gonna estimate it's probably gonna be around 45%. Bank of America has not said anything about this yet. So you can take your monthly gross income. Time is 0.45. That's the maximum amount of debt you have, or you're allowed to have.

So you subtract your monthly debts. So if you have a $300 car loan, you know, a $200 credit card payment, you subtract that from that number what's left over is the maximum mortgage payment you can have.

No clear loan limit

Most loans have a limit on how much, or how big of a loan you can take out. They haven't said anything here. If it's going off of what other, you know, grants Bank of America has likely they're gonna be using a conventional loan and following conventional loan limits, which right now for most of the US is $647,200. Which gives you a maximum purchase price of 667 with 0% down you're going to be stuck with the 647,200.

Home buyer certification course

One other requirement is you do have to complete a home buyer certification course. This is not that significant. This is home buyer certification courses are required on a lot of loans. And it'll probably take you 30 minutes to an hour to go through. It is free if it does have a cost, it's gonna be a very minimal cost and usually, that's going to be covered. So it may be helpful, but you'll probably learn a lot more by doing your own independent research than just relying on a home buyer certification course.

So why are they offering this program?

Well, first of all, Bank of America obviously makes money off of this program. They're not just doing this out of goodwill, right? Banks aren't operating, you know, for-profit companies are not operating out of goodwill, even if it, you know, may seem like that. No, one's under that illusion here.

Report from National Association of Realtors

So there's an interesting report by the National Association of Realtors where they say the homeownership amount of white households was 72% and 2020 according to the National Association of Realtors compared to 51% for Hispanic and 43% for black households. And so this program is targeted at closing the homeownership gap here. Also, black borrowers are denied at twice the rate of overall borrowers from a lending tree report.

So that's the main goal here. Again, this is not just out of goodwill. Obviously, Bank of America is making with us.

What's in it for BoA?

So there are a couple of things here why I think Bank of America's likely offering a program like this. As a bank, banks can often create lost later products basically where they're not making money on a certain product because they have other ones they can sell Bank of America for instance. If you get a mortgage through them, through a program like this, maybe they don't make money on the mortgage. But they, you know, there's a lot of people who get a mortgage with Bank of America who likely will use their depository accounts, like checking and savings, or they may get a home equity loan, or they may get a car loan. They may get a credit card. They may get a personal loan, but there are other products that they can sell.

And so this is really common with physicians' loans where banks will often give loans for doctors and basically not really make any money on the mortgage, but they want that client because that doctor usually is going to be, worth a lot of money to them with other products that they have.

So that's one thing here likely there's probably going to be a higher interest rate. I don't know that for certain, none of that's published online, but usually what happens with these programs is they do tend to have a higher interest rate than a more traditional loan product to make up for the risk. So it's something to be aware of and you can shop around for it as well.

What's in it for you?

Obviously easier access to appreciating real estate. You know, right now the recording of this video real estate is up 15% year over year. And it's been like that a double-digit growth for the past couple of years.

Will that continue the future?

It's really difficult to say. Nobody knows what the future is going to look like. A lot of people are expecting things to slow down. Some people are even expecting things to flip. In the other direction, nobody knows for certain, however, historically real estate does appreciate over time. So this could be easier access to get into a home if that's what you're looking for.

Be careful because it's easy

Obviously though with the caveat that you need to do this and be very careful about jumping into something, just because it's easy. If it's easy that opens you up yourself to risk. If you're not familiar with some of the ins and outs and what to be careful of.

$0 out of pocket

I actually think is really great. I know a lot of people like really shame $0 down programs, and they're like, oh, if you can't afford the down payment, then you shouldn't buy a house. While I do believe that's true, I don't think it's a full thought.

No money, don't buy

So for instance, if you have no money in your bank account, you should not be buying a house. If you don't have money to buy any, you know, to pay for any part of the house, I don't think you should buy a house. However, let's say that you're buying a home and you actually do have, let's say you have $20,000 saved up and then you happen to find a $0 down the program. I think that's a better solution.

Have the $20,000 in cash that you can use for potential repairs, emergency funds, moving expenses, you know, paint furniture, everything down. Without having to put it into the equity of the home where you can't access it, right? You have that $20,000 in cash, which I think is a lot more effective and a lot safer than putting it on the down payment.

So if you have money, I think the zero-down programs are actually pretty helpful in allowing you to have free cash. The opposite though. And I will say one more note on that. I see so many people who do have money saved up and then they will go wipe out their bank account to buy a home.

So they've bought a home and they put a down payment down, but they don't have any money left in their bank account for things like moving expenses, emergencies, and the things that come up with owning a home. So, obviously, if you don't have any money, if you're like, I can't afford a down payment, I don't think going with a 0% down program is smart because buying a home, owning a home does come with expenses that will add up extremely quickly.

How much higher is the interest rate?

Is it gonna be higher? We don't know what that's going to be like yet. You need to shop that around. Talk to multiple lenders to see if that rate high. You know, talk with Bank of America and then talk with other lenders to see what kind of interest rate you could get.

A higher rate can lead to failure

Also, a higher rate if it does have a higher rate, could set people up for failure. This is what a lot of people have some concerns about that since they're targeting these, specific neighborhoods, is that if you're offering programs, then have a higher monthly cost, it's not just the higher monthly cost, but it's the interest cost over time.

So for instance, if you're getting, let's say a $400,000 loan and we're gonna exclude taxes and insurance for us. But if you're getting a $400,000 loan, just the principal and interest payment, is gonna be 2000, almost $2,400 per month at a 6% interest rate. At a 7% interest rate. It's $263 per month.

Over 10 years, that adds up to $40,000 in interest. Over 30 years, that's $95,000 in interest that you pay extra, just because of that 1% increase in rate. And so this is the big frustration or big concern. I think a lot of people have where it's if you're offering these programs, that seems really interesting at the beginning, but they do have a higher rate.

This is $40,000 less in somebody's pocket or $95,000 less in somebody's pocket, over 10 years, 30 years because of that high rate. So something to be mindful of.

How long do you have to stay in the home?

Sometimes these programs, do you have a limit on, you know or say you have to be in the home for, let's say three years, five years. They're unclear on that at the moment. It may just be that there is no requirement to stay in the home. Is there an income limit that is not clear yet? And then one thing, the biggest concern is the equity risk with every 0% down program. There is a risk of equity because if your home right now is valued here, and you have 0% down, you have no equity in it.

That means if you wanted to sell and you used a realtor and you're paying 6%, for both realtors, you know, 3% to one realtor, 3% to the other, which is common. You're gonna have to pay money to be able to sell your home. So if home values go sideways or down, you may be underwater in your mortgage where you own more than your home is worth, or the opposite could happen.

The home could appreciate what has happened historically over time. But it's gonna take a lot longer for you to have the equity to be able to sell. So you may have to hold onto that home longer. Whereas if you did have a down payment, you do have some more freedom to sell if you need to in a pinch. So something to be careful of with this 0% down program.

Connect with BoA

If you are considering using a program like this, again, you would talk to Bank of America. Don't talk to me. We don't do this program. So, Bank of America. Please make sure you have reserves and do not buy this program. If you do not have money. Owning a home comes with expenses, things break and you will need to pay for them. You don't wanna have to put that onto something like a credit card or just not be able to pay for it at all.

So what I think is ideal is three to six months of expenses, depending on how risky you like to live. And basically, the way this works is if your monthly mortgage payment is $1,000 per month, three months of expenses is $3,000.

If your mortgage payment is $2,000 per month, three months of expenses are $6,000. Have that in the bank. That's gonna give you a nice cushion and protection. If things happen.

BoA has other programs

Also explore Bank of America's other programs, Bank of America funds the NACA program, which is a program that also provides very similar features as this loan, but it takes a lot longer. You have to go through counseling, and budget, you know, budget with a NACA counselor. I think there's also some community service involved there as well. So it's something to look into. Bank of America also has other grant programs for you to explore.

Try other traditional loan programs

Then also, explore other traditional programs like conventional loans, and FHA loans. Now, this is only part of the story though, because this is only one of the grant programs that Bank of America has. Bank of America actually has several other grant programs.

Talk with a loan officer
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