Yahoo! Finance recently posted the article I achieved the American Dream – and It Was Awful by Darlena Cunha. In it, Darlena shares an all too common housing bubble story of lost money, lost dreams and lost confidence in an uncertain housing market when her home went underwater.
There are a lot of “what if’s” that could be played throughout the story – what if they found a new job locally, what if the hospital costs weren’t so high, what if the furnace worked - but one “if” wasn't available back then: down payment protection.
What is Down Payment Protection?
Different than PMI and homeowners insurance which are paid by owners to protect lenders. Down payment or home equity protection is for home buyers protecting their down payment investment in the home – of which most have to make up to 20% and is unsecured.
For years, Nobel Economist Robert Shiller and Fed Chairman Ben Bernake have discussed a need to protect responsible homeowners from uncontrollable market changes like those that happened in 2008. This coverage is now finally becoming available across the US. Instead of foreclosure or just walking away and killing their credit, this protection gives homeowners flexibility to sell at a loss, recoup their down payment and move on to their next home.
How it Can Help?
Looking at Darlena’s story, she purchased a home in Connecticut in Q2 2008 for $240,000 and eventually was allowed to walk away in Q1 2009. Most people aren’t given that option and have to try to figure out a way to make it work until foreclosure is pushed upon them. As seen below, the market in Connecticut has not recovered to its 2008 level hitting a low point at the beginning of 2014. So if Darlena did stay, she would have sold at a loss, but with home down payment coverage, she could have recouped up to 15% of the losses assuming she put 15% or more down. The FHFA has an easy to use calculator so you can play the “what if” game for your area.
Who Can Get It?
Home down payment coverage is available across the U.S. and could be included in your monthly mortgage payment for a small cost (around $20 on average). Ask your lender to include it as part of your next home loan.
The American Dream shouldn't be awful. It is an exciting time filled with hope and opportunity, but sometimes life happens and homeowners need to move on to their next dream. Homeowners need to have that flexibility and control to make decisions themselves.