Now, the zero-down product has truly become a product that is sold like many other more conventional loans,'' said Greg Pennington, a broker with Wausau Mortgage in Pleasanton. Mortgage research shows no-down loans are more risky than conventional mortgages. Borrowers who manage to save for a down payment put a stake in their home investment and are less likely to walk away if times get tough. However, the zero-down trend indicates lenders' calculated confidence that the economy will continue to surge ahead and borrowers will have ample time to catch up financially with larger incomes, home appreciation or both a few years down the road. Using favorable economic times to reach previously underserved consumers, including minorities and low-income borrowers, could be a financial disaster for those who have the least to lose should the bull market become a bear.
Lenders can simply foreclose on the property.
Critics also say the loans reward some consumers for not practicing sound economic principles. Good lender intentions or not, zero-down loans warrant scrutiny and, perhaps, a historic look at easy mortgage money. Soon after, the economy sours, you lose your job or are forced to accept a lower-paying position. Suddenly that large monthly payment looms much larger. Trying to keep a roof over your family's head, cheaper monthly rent starts to look attractive.