Zero-down mortgages are back a decade after mortgage meltdown

Will this new wave of exotic bank statement and fog-the-mirror mortgages crash housing again?

By Jeff Lazerson | | | July 17, 2021

The loftiest of home prices are upon us. Like the 17th-century tulip mania, everybody has got to get on the road to homeownership.

Now, even first-time buyers without a down payment can get in on the action. That means no skin in the game — just like the good old Great Mortgage Meltdown days.

No down-payment loans are available for up to $1.25 million so long as the primary wage earner has at least a 700 middle FICO credit score.

Should you not show enough income from your day job or your self-employment income to qualify, you can document your income with bank statements, averaging the most recent 24 months of personal bank statement deposits.

Pricing is nasty on this so-called 80/20 piggy-back mortgage. But beggars can’t be choosers.

There is a 4.5% minimum “floor rate” on the 30-year mortgage. It is subject to an initial rate adjustment after the first 5-years. The second mortgage has a floor of 9.99%, fully amortizing over 15-years.

Here is an example: Say you are buying a home for $1.25 million. The rate for the first $1 million dollar mortgage is 4.5%, with an initial principal and interest payment of $5,067.

You then take out a 15-year fixed-rate loan for the remaining $250,000 at 9.99% with a payment of $2,685.

Assume monthly property taxes would be $1,302 and your monthly fire insurance payment lands at $200 per month. Then your total house payment would be $7,952, excluding any potential HOA fees.

The only significant differences between this current crop of exotic zero-down mortgages to yesteryear’s so-called no-down subprime category are today’s mortgages ban balloon payments and prepayment penalties, thanks to the 2010 Dodd-Frank law.

And the current minimum middle FICO score of 700 is higher than yesteryear.

But remember, the race to the bottom prior to the Great Recession. It was always about competing mortgage lenders undercutting that other guys’ or gals’ underwriting standards. Take that to the department of foreclosure prevention.

How about some more memory lane craziness?

Can you fog a mirror? Of course you can. Fog-the-mirror mortgages are available now with just 20% down on a purchase and 25% equity on a refinance for loan amounts to $3 million.

No income or job listed whatsoever? No tax returns? No paystubs? No averaging bank deposits over 12 or 24 months to calculate income? You will need just page one of your bank account statement to source your down payment funds, provided you are not receiving 100% gift funds.

Do not you worry about the lender seeing those bounced checks or other financial difficulties on page two of your bank statement. Rates start at 4%.

How about investors instruments? Believe it or not, fog-the-mirror type mortgages start even lower for loans on investment properties than for primary residence mortgages. How do you like 3.75% on a 30-year mortgage that adjusts after the first five years?

You need a minimum of 15% down. Loan amounts go to $1.5 million. You will have a three-year prepayment penalty (penalty for paying off early is 80% of six months interest).

If you are considering one of these mortgages because you cannot qualify for a traditionally cheaper Fannie or Freddie mortgage, first let’s get real.

Think through this. Home prices are peaking. Unless you are triple sure you can handle the higher house payments, have a family lifeline to rely on, have lots and lots of cash reserves and have the stomach to ride out the eventual property value downturn, then don’t do it. Do not over-extend yourself.

Freddie Mac rate news: The 30-year fixed rate averaged 2.9%, 8 basis points lower than last week. The 15-year fixed rate averaged 2.2%, 6 basis points lower than last week.

The Mortgage Bankers Association reported a 1.8% decrease in mortgage application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $548,250 loan, last year’s payment was $38 more than this week’s payment of $2,306.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1 point cost: A 30-year FHA at 2.25%, a 15-year conventional at 1.875%, a 30-year conventional at 2.5%, a 15-year conventional high-balance ($548,251 to $822,375) at 1.99%, a 30-year conventional high-balance at 2.625% and a 30-year fixed jumbo at 2.75%.

Eye catcher loan of the week: A jumbo 30-year mortgage adjusting after 10 years starting at 2.25% with 2 points.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or His website is

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.

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Jeff Lazerson - Mortgage Columnist since 2011