Mortgage lenders in Silicon Valley are gambling on up-and-coming young tech investors by offering them quickly prepared mortgages with no down payments. However, real estate and finance professor Susan Wachter of Wharton School says these loans are risky. They are also a response to the increased price of properties in San Francisco and other tech markets.
Although many of these young professionals are part of an industry known for producing billionaires such as Bill Gates and Steve Jobs, they have little cash on hand early in their careers. Many are waiting for the tech company they work for to go public and have much of their cash in company stock. That stock could be worth much more if the company does go public. If it fails, though, like a large number of tech startups do, it could be worth nothing.
Even those who hold impressive titles in these startups, including some CEOs, simply don't have the cash to make a ten percent down payment. While lenders are making zero down payment loans for tech startup professionals, they're also targeting other groups for such deals.
Lenders are offering low rates and zero down mortgages to lawyers, doctors, and other high-end professionals expected to make a large amount of money soon. Many see this as a worthwhile risk since these customers are likely to buy larger homes in the future.