Buying a home is one of the biggest steps in life, and the idea of doing it with little money down sounds great. But low down payments often come with hidden risks that can hurt homeowners later, especially when the market takes a downturn. The stress we go through is one major risk, the credit score going down is another, and the worst of all, the sad reality when foreclosure becomes the only way out.
When we buy with a small house down payment, we have very little equity to start with. Also, it means a high monthly mortgage. And if home values drop and we need to sell, we will owe more than what our home is worth and won't be able to sell unless we are willing to bring the difference from our savings. Sadly, this is exactly what happened to millions of families during the last big housing crash. People who bought homes with low down payments for home loans found themselves “underwater,” with homes worth far less than their mortgage balance.
Back in the early 2000s, during President George W. Bush’s term, there was a big push to make “housing for all” a reality. The goal sounded good: to help more Americans become homeowners, but the system made it too easy to get and lose a home. Banks offered loans with little or no money down and very loose qualification rules. When the market slowed and home prices started falling from 2007 to 2008, the dream turned into a nightmare. Many homeowners simply couldn’t afford their payments, leading to one of the largest waves of foreclosures in U.S. history. It looks like we are about to repeat that mistake with new aggressive financing programs.
Sadly, we see new programs coming on the market with reduced down payments. One company is offering as low as 1% down payments. Low credit scores are considered an OK thing in other cases. Now imagine low credit and low down payment. Add the current high prices, and this is a horrible recipe to lose your home when things go wrong, which they often do.
So, what's the solution? Here are a few suggestions:
Wait to gather a higher down payment.
Buy only when you have at least 6 to 8 months of reserves in case of those unseen circumstances, like losing your job.
On Track Realty has provided families with home-buying and selling services since 1994 with honesty and integrity. The goal isn't just to have you buy a home, it's to help you keep it and gain generational wealth through it. Whether you're looking for the Best Realtors in Edison, NJ, our team of expert Real Estate Agents in Edison is dedicated to working with you every step of the way.
Call us today at 732-494-2211 or online at ontrackrealty.com to speak with a team that will put your goals first.