A smaller downpayment may protect the home buyer.

BAM!!! Get to work!! Hi folks. My friend, Bill Archambault, put up a post earlier today expressing his dismay over “When mortgage and real estate people start talking about people with out large down payments being undeserving a home of their own…..” Take a minute and go read Bill’s post. 

Did you notice this statement? “Truthfully, big down payments protect no one except the bank! Little or no down payment may even protect the home buyer, by maintaining his liquidity and putting the bank mutually at risk with the home buyer.” 

That statement is what this post is about. This is a real life example. 

I have a Seller right now who bought her home in Poinciana in late 2006 for $179,000. She’s from NY and in early 2006 came into $100,000. You’d think that would be good thing but the money came from a lawsuit related to the wrongful death of her only son. 

The stress of her son’s death and the ensuing lawsuit placed her in a position of wanting out of NY. So, as many people do, she moved to Florida! She used every bit of her $100,000 as a down payment and took out a mortgage for $79,000. 

Everything went well for about a year and then life, being unpredictable, dealt her a hand that caused her financial hardship. She was no longer able to keep up with her mortgage payments. She fell into default with her lender.

I met her about a month ago and valued her property at $75,000!!! This means that after selling expenses she is in a short sale situation. Could you imagine putting almost 60% down on a home and still being upside down in less than 2 years? That’s incredible. 

How much better off would this lady be if she had bought with even 20% down? She would still be upside down on her home BUT she would have cash reserves to help her weather the storm. 

Now this is an extreme case but it truly illustrates how “Little or no down payment may even protect the home buyer, by maintaining his (her) liquidity…”

I wonder if her REALTOR® or mortgage broker mentioned this to her when she went to purchase? I wonder if I would have said anything to her? Should we?

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