Are zero-down mortgages making a comeback?

(NewsNation) — Many Americans are struggling to afford a home, and today's typical down payment of $56,000 presents a major obstacle.

One of the nation's largest mortgage lenders is trying to lower that barrier, announcing a new 0% down mortgage program last month. United Wholesale Mortgage (UWM) said the program aims to "help more borrowers become homeowners without an upfront down payment."

Under the program, qualifying borrowers would receive a 3% down payment assistance loan up to $15,000. That loan won't accrue interest or require a monthly payment. Instead, it needs to be paid off by the end of the mortgage term if the owner refinances or when the house is sold.

While that may sound appealing to some, it doesn't solve today's problem of high interest rates, said Lance Lambert, co-founder and editor-in-chief of ResiClub.

"Doing 0% down doesn't necessarily pull that many buyers back into the market because the thing that's keeping them sidelined is they can't afford that monthly payment," Lambert told "NewsNation Now" on Wednesday.

One reason down payments are so high is that homebuyers are spending more money upfront to offset the pain of higher interest rates. Those who can afford it are skipping the loan entirely. Earlier this year, the share of all-cash buyers hit its highest level since 2014.

For that reason, Lambert said he isn't expecting a boom of 0% down mortgages. That may bring a sense of relief to those who hear "zero down" and immediately think of the 2008 financial crisis.

"The difference between today and the 2005-2006 market is we've had a lot of qualified mortgage rules passed," he said. "Even if somebody does a 0% down, they still have to meet strict debt-to-income ratios."

What is a zero-down mortgage?

A zero-down mortgage is exactly what it sounds like: a home loan that doesn't require any money down at closing. Generally, buyers will pay between 5% to 20% upfront to lower their monthly payments, but with a zero-down mortgage, buyers are financing 100% of the home's purchase price.

The easiest way to get a zero-down mortgage is through a government-backed loan. Those who qualify for a VA loan or USDA loan can buy a home without putting money down.

What are the pros?

Zero-down mortgages can be attractive to those who can keep up with higher monthly payments but don't have tens of thousands of dollars saved up for closing.

"The person that [lenders] are trying to attract is that entry-level buyer," said Lambert.

Zero percent down may allow first-time buyers to own a home sooner than they would have been able to without needing to save up a lump sum. In effect, no-payment-down options are a way for people to break into the housing market who might otherwise struggle to do so.

What are the cons?

The biggest downside to a zero-down loan is that homeowners start with no equity, which means a downturn in the housing market could put them underwater, owing more than their home is worth.

Not putting any money down also means you're likely to pay a higher interest rate, which adds up over the life of the loan. With today's elevated mortgage rates, that could end up being tens of thousands of dollars more over time.