When Rebekah Milla was told she could buy a new house with no down payment, no closing costs and a low interest rate, she was suspicious.
The offer came from the lender recommended to her by the homebuilder that was selling her the house.
"I kept thinking there has to be more to it," she says. "What's the catch?"
The enticing offer probably wouldn't have intrigued her as much during the housing boom, when there were widespread offers of all sorts of zero-down payment subprime loans.
But in the current tight lending market, those types of mortgages have simply vanished. Yet, large homebuilders in some areas still advertise home sales with no down payments and no closing costs and low mortgage rates.
"Remember, nothing is free," says attorney Rafael Castellanos, an attorney in San Diego. "Unfortunately, it's very convenient for buyers to get their mortgages from the builder, but keep your eyes open because they are not there to look after your interest."
But as Milla learned, that doesn't mean there is always a catch.
The zero-down offers that many homebuilders are promoting nowadays actually are made available through various down-payment assistance programs offered through county and state housing agencies in many parts of the country.
Milla hesitated when she first started looking into the offer, but she says she's glad she explored the option.
In February, she closed on the purchase of a $149,000 house in Rockledge, Fla., using a $5,000 loan from a down-payment assistance bond program offered by Brevard County. The loan is a second mortgage with no interest and has to be repaid to the county when she sells the home or refinances the mortgage.
She used part of the $5,000 for a 3.5 percent down payment on a loan insured by the Federal Housing Administration and the rest to cover part of the closing costs. The builder paid the balance of her closing costs and she had no out-of-pocket expenses to buy the house. Because she was approved for the bond program, she was able to get an FHA bond program interest rate, which is normally lower than standard FHA loans, according to the loan officer who helped her with the loans.
"She got a 3.9 percent 30-year fixed FHA loan," says Deborah Holloway, a loan specialist at Guaranty Mortgage in Melbourne, Fla. "There is no catch, no points, no hidden fees," other than the 1 percent upfront mortgage insurance premium on the FHA loan that gets added to the total amount of the loan, which is standard in all FHA mortgages.
The bond programs are often limited to first-time homebuyers and have income restrictions. The county program Milla used is available only for borrowers with a household income of no more than $75,480 for two people and $88,060 for three. The program ran out of funding recently, Holloway says. But there is a similar state program available in Florida that still has funds, she says.