Did you know that 0 down home loans were initially devised for the very rich? This may surprise some people because we tend to think of low interest loans as loans for people who might struggle to make a larger monthly mortgage payment. And even when 0 down home loans became popular for people with lower incomes, they still were designed to make the rich, well, more rich.
Originally, 0 down home loans were devised as a way for someone to invest in more property without having to liquidate any of their assets. Basically, the most successful rich people don’t let their money sit in the bank somewhere. They constantly invest it. But if you had invested your money in a number of assets and another investment opportunity arose, you would have to sell one of your assets in order to invest in the new opportunity. A no money down home mortgage made it easier for these asset rich individuals to increase their wealth without having to liquidate their existing assets.
In recent years, 0 down home loans were basically used as a gamble for rich banks. They would let people with lower income in on loans they otherwise could not afford because they believed that even if those lower income individuals defaulted on their loans, the rich banks would still be able to make money by selling the property because property values always went up at an extraordinary rate. Unfortunately, when property values stopped going up and banks found themselves owning properties from defaulted loans that actually had less value than they had when the original loan was obtained… well, you have seen what this has done to the economy.
I believe there is still a role for a no money down home mortgage in our economy. However, it should not be used to gamble on the budgets and lives of people with lower incomes. Instead, it should return to being used as a way for people with a strong profile of assets and exceptional credit to further their investments. And thus a 0 down home loans could once again help fuel our economy instead of bringing it down.