When home prices are stable or falling, home buyers often mischaracterized their downpayment on a home, calling it their “cushion” against falling home prices.
Nothing could be farther from the truth.
Nobody wants to owe money when they sell their home. In fact, when asked, most people will answer that they just want to “break even” on their sale.
So, if that person later sells their home for $30,000 less than they paid for it plus the cost of improvements, $30,000 is their loss. If their initial downpayment happened to be $30,000 and they walk away from the closing table “even”, it doesn’t change the fact the home owner lost $30,000 on the sale.
The downpayment is not a cushion — it’s an investment. And when facing falling prices, it can be a simple game of Pay Now, or Pay Later.
