Zero down, then what?

Eric Landers, To buy the $150,000 house in Charles Village that he wants, first-time buyer Eric Landers has saved more than $10,000 for the down payment.

It wasn't easy for the full-time student.


"Just trying to save and trying to live at the same time is very difficult," said Landers, 24. "To have money to do what you want to do and have money to pay bills leaves very little to save, so it takes a long time to come up with that kind of money."

First-time buyers often find it difficult to come up with down payments, and housing experts say that cost is typically the biggest obstacle for homebuyers.


The down payment, which can total several thousand dollars, is a critical cost that lenders require when deciding whether to grant a mortgage to a buyer.

The Bush administration has proposed a zero down payment plan to help more people buy homes.

Buyers would pay higher mortgage interest rates to cover the costs of the plan, which would be administered by the Federal Housing Administration. The proposal is being debated in Congress.

Though hailed as another effort by federal lawmakers to increase homeownership - the current national rate is a record 68.6 percent - some worry that zero down payments could lead to increased foreclosures and mortgage delinquencies.

Some housing advocates fear that buyers who don't make the commitment to save for a down payment might not realize the financial responsibilities that come with owning a house.

Department of Housing and Urban Development officials say the program would require those who qualify for the FHA loan to attend home-buying seminars and mortgage counseling before receiving any money.

Longtime goal

And the officials point out that increasing homeownership has been a major goal for years.


"Remember, this product is for families who can afford to buy a home," said Lemar Wooley, a spokesman for HUD.

"They must meet the same underwriting requirements as those applying for our other FHA-insured mortgage loans. If they choose to go with the zero down payment, they have to pay a higher insurance premium, and the down payment is rolled into financing."

HUD officials have set a goal of increasing homeownership by 150,000 families in the first year of the program.

The loans would be issued nationwide by private banks under FHA guidelines.

Help last year

The legislation would be in addition to last year's American Dream Downpayment Act, which was passed by Congress and signed by President Bush. It authorizes up to $200 million a year in down payments and closing cost payments for low-income families.


Vincent Quayle, executive director of the St. Ambrose Housing Aid Center in Baltimore, said the zero down payment proposal might help some buyers, but he worries that the system could fool some people into thinking they can afford a house. Mortgage foreclosures have hit record highs during recent years, in part, Quayle thinks, because credit has become too easy.

"Until five years ago, the typical reasons for people losing homes was because a marriage failed, they lost a job or they got sick," Quayle said. "But now people are coming to us because they could never afford a house in the first place."

Shanelle Shakoor, housing director for the Baltimore Urban League, said her office offers home-buying classes that stress the need to save money for down payments.

"We do believe that homebuyers should know that home buying is a financial commitment," she said. "Saving money for the purchase of a home is an indication of that."

Homebuyers often point to closing costs and down payments as the hardest part of securing a first home. Because mortgage interest rates have been at historic lows in recent years, more people have been able to afford monthly mortgage costs.

Nicholas Mosby, a 24-year-old recent college graduate, has been shopping for a home on St. Paul Street. During the past several months, he has saved a few thousand dollars for a down payment.


He said the HUD proposal would be a nice solution for buyers like him. "Working hard to pay off credit, get financing and then, in turn, pay settlement fees is impossible for a lot of people," Mosby said.

"I think [this plan] is really good for average working-class Americans who just can't afford that huge lump sum in the beginning."

Landers, the first-time buyer who wants to live in Charles Village, thinks the HUD proposal is a good idea for people who want to invest in real estate but can't secure the upfront funds needed to buy a house.

"I think this plan is a good idea," Landers said. "Even though it's true that sometimes people do have to show commitment [by saving for a down payment], there are people out there that do have that commitment and just don't have that kind of money. [They] are very serious and know what they're getting into."