A small downturn in local house prices can place a 97% mortgage in serious trouble.
No, that can put the home upside down, but as long as borrower can easily afford the monthly payments, its not a problem. Where we/you/people run into issues with these loan down loans is they also tend to have lower credit and are not very much able to afford the payment.
A lot of people in 2008 and above walked away from houses they could afford the payment on simply because they owed more than the House was worth. With a 97% mortgage it doesn’t take much of a downturn to put you under water.
It’s NOT really a 97% mortgage.
It’s a 103% mortgage.
The transaction price has about a 6% commission embedded in it. The real estate commission does not increase the market value of the house in the event of a downturn in housing prices.