How much you put down may be irrelevant to the seller at the closing providing the balance due is funded. It's not irrelevant when a buyer requires a financing contingency. A financing contingency protects a buyer's deposit if they can't secure financing. A financing contingency is not in the seller's best interest it's in your best interest. They are taking a risk by taking the property off the market. A contract with a financing contingency usually has language requiring the buyer to apply in good faith for a mortgage that conforms to what most commercial lenders require. You're entitled to shop around for any kind of loan. However, by the loan commitment date if you can't secure a commitment for more than 80% financing but you're approved for 80% financing the seller doesn't want you to walk and give back your down payment. Your lawyer should be able to use language in the contract that gives you options but also gives the seller assurance.
It is all perception. You have answered the responses below that it is neither a co-op or condo. Therefore I won't go down the road of co-op requirements and co-ops vs. condos. When you are at the offer stage, a seller or their agent looks at the whole picture, not just the number you are offering. The more a buyer puts down, the more qualified they are deemed to be in the eyes of the seller. But since you are talking about the contract, it seems you have an accepted offer. Contracts do include the percentage down and the percentage being financed. You don't have the option of it not being in there. You can always finance less, though not more than what is written into your contract. When you are entering into a contract, your are making a deal and the deal does include how you are financing and what percentage. I assume you have a mortgage contingency clause in the contract and that is why the information about the type of mortgage and the percent you are borrowing is relevant.
If you're putting only 3.5% down, it sounds like you're going FHA and financing your closing costs. If that is the case, then the reason the seller is concerned is that the home has to appraise for the total amount financed - with the closing costs added. In today's market, that may be difficult. For instance, let's say you're buying a home for $300,000. Closing costs are typically around 6% of the purchase price. If you're financing 100% of the value of the plus another 2.5% for the closing costs, the house would have to appraise for $307,500 rather than $300,000. FHA requirements for a loan are a bit more restrictive than most of the other loan products out there. So, at the end of the day, if the seller is buying another home with the proceeds from your sale, it is very important to them that the deal gets done. You would be a much stronger buyer if you put 20% down rather than doing a seller's concession. At the end of the day, if you're working with a good buyer's agent and otherwise you are a strong buyer, you should be able to work it out. Good luck.
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Don't forget you will need at least a years worth of payments in the bank, depending on the area in NYC, some require 2 years. Also, a bank will more than likely not lend to anyone if you have nothing in the bank after your down payment. The more you can put more down, you won't have to pay PMI (Principle Mortgage Insurance). That adds up.
If you are talking about purchasing in a co-op in NY, then the minimum required is at least 20% as a down payment but it may be higher depending on the building. Each co-op building sets their own rules on how much of a down payment is required to purchase in their building. The seller will want to know what you are putting down so that when considering your offer they know that you are qualified to purchase in that particular building & will have no issues getting board approval.
In a condo, building's require 10% down. However, these days with the credit crunch as it is, I have seen lenders require more than 10% to approve financing. So a seller may want to see more than 10% as a down payment, so that financing is not an issue, even though the building will allow it. I've seen FHA loans used here more recently in new construction where in order to make deals happen, developers have gotten their buildings approved for FHA.
In the past, it's been much more difficult to gain board approval in a co-op than to get approved for a loan. And that's the reason we haven't seen the large foreclosure rate in NYC that we've seen in the rest of the country. Co-ops are 75% of the market here so we've been protected for the most part from that here. The banks have tightened their lending requirements & that's a good thing for all. Hope this was helpful...
If you had a FUL PRE-APPROVAL, sometimes known as a pre-commitment....contingent only upon an appraisal and a contract, they might be more inclined to not be too concerned.
In our current climate, too many deals fall. The bigger the down payment, the more chance the bank will take on the loan commitment...they have less to lose.
Unless you have a full pre-approval/pre-commitment, you should not even be looking...get the priorities in order and make yourself an A-1 Buyer!
You show a seller you are serious when you put down a reasonable or exceptional down payment amount. Many buyers have walked away from their contract because they put down a small down payment. When a seller knows your putting down a substantial amount they know that you are not going to break that contract and walk away from your down payment for them to keep. Makes sense now!
I hope this will help you understand because if you buy today and sell down the line you need to understand this concept before you go into contract with a buyer with only a small down payment on your house and can walk away with very little to lose.
In response to Hannah's post. I'd be very cautious of any agent recommending that you make a larger down payment so that "...you guarantee that they all get paid!"
When I'm representing a buyer I include a clause to the opposite effect, stating that if the property does not appraise for the agreed purchase price you (the buyer) can walk away. Why would you want to "buy equity"? That makes no sense, especially in this market!
If the property does not appraise well then the seller and certainly both realtors care what you put down. For example let's say that you want to purchase a property at $100k and you put down only 3.5% and the property appraises at $95K then the lender will not lend on that property.
Now say you put down 20% on the same house. It does not matter what the appraisal came in for, because you are putting so much money down that you actually "bought" equity.
Both realtors and the seller will love you more if you put down the 20% because you guarantee that they all get paid!
As Jenet stated, it is all about perception and while a buyer putting down 20% is perceived as a stronger buyer than one putting down 3.5%, a few words of assurance from your lender can very likely convince the seller that you are the right buyer for them.
Perhaps I can provide more assurances to them that we're well qualified and financing will happen, but that we need to remove the 20% contract contingency to move forward.
There are 2 other issues. One is just lack of information about what FHA involved, so that they just don't feel comfortable with it because they are afraid that they will have to fix problems, etc.
Although the difference between 3.5%, 10% or 20% down still required the unit to appraise in order to get the required financing, if you have a buyer who is putting down a more substantial down payment, the seller doens't have to worry as much about appraised value.
You're the one making the offer and it should have been made on your own terms, not the seller's. However if you're buying into a co-op and most condos, your application will go nowhere if its going in for board approval without that down payment.
On the other hand, if you're in a short sale situation which this might be then the terms are dictated by the lender and that's something that varies across lenders.
If you're looking at rehabilitating 20% is the minimum to get a loan but that could include construction costs.
Remember, a serious buyer with strong credit and cash in the bank owns this market.
The price is only one consideration that a seller may use to evaluate an offer. A higher down payment may make some sellers feel better about the buyer's ability to close, when in reality the buyer with less of a down payment may in fact be most likely to close, depending on the situation. A higher down payment does not guarantee the loan will close!
Another consideration is that some uneducated buyers may make an offer on a property not realizing the lending requirements for their type of purchase. For example, I was recently working with a seller who received an offer from a newbie investor on their townhouse. The buyer planned to put 5% down, not knowing the minimum down payment requirement for this investment would be 20%. Since we requested the information we where able to avoid entering into escrow only to find out the buyer could not perform on the contract, eating up valuable market time.
Anther case-in-point I recently received an offer on one of my listings where the buyers-agent thought the home fell in an area where zero down financing was available through our state. The contract read that they where putting zero down. Since I knew the property was outside of the area that qualified for the zero down financing we again were able to avoid entering into escrow.
Both of the examples above happened within about 2 weeks of each other. So although it is rare, since most buyer agents and buyers do their homework, it still is important to know.
Hope this helps!
During the offer process, asking how much the buyer intends to put down can be used to differentiate between two potential buyers? The one with higher down payment provides some added confidence that lending will come through. And then they want that in the contract to hold the person to that faith. Could that be the reason why? Although, I've already proved that I can pay 20%, but I may choose not to in the end due to lending options.