1. Banks will be reluctant to lend money to people who are upside down on their mortgages. The “I’m trying to sell” trick isn’t going to work when your house is worth 250k and you owe 500k in the first mortgage.
2. If I’m not mistaken, zero down loans are usually constructed out of a 20% down first mortgage and a second mortgage/HELOC to cover the down payment. It’s done this way because 20% down waives the PMI requirement, interest on the second mortgage is tax deductible, and PMI is not.
In this situation, first mortgage is non-recourse, but second mortgage isn’t. Who lent you 100k to cover your down payment will try to sue you and collect his money.
