However, the problem that arises when an appraisal comes in lower than the sales price is given the present terms of a transaction, say 20% down for example, the bank now has a higher loan-to-value ratio for is 80% loan. What was originally an 80% loan could become an 85% or higher LTV. So, the bank won't make the loan unless the buyer puts down a larger amount.
Buyers are reluctant, most of the time, to put down more - whether it's 3%, 5%, or 15% more. So, buyers do what appears to be a logical solution and they turn to the seller to demand that the seller lower the sales price. That's why sellers like all-cash buyers.
On top of which, all-cash buyers can't cancel because of underwriting conditions or a bazillion other types of financing scenarios. They typically will reduce the contingency period, particularly in multiple offer situations and they can close escrow faster.
Borrowers who get 100% financing or choose to put very little down appear weaker when compared to an all-cash buyer. However, if you hire a strong buyer's agent who knows how to make your situation appear advantageous to the seller, half the battle is won right then and there.
P.S. And that's why with most REOs, all-cash wins hands down.
The amount of the down payment simply shows an amount of strength a buyer has in procuring a successful loan hence, a successful closing. It may seem that a larger down payment would be coined a stronger purchase offer but in reality it comes down to the lender's list of requirements they will need from the buyer in excess of the down payment portion of the loan.
You could have a 3% down payment buyer that is much more qualified to close the purchase then a buyer putting 20% down due to credit ratings, employment verifications, debt ratios, etc. The amount of money put down on a home may or may not be of value to a seller. Closing the purchase is of greater value to a seller, period. Best to you!
Diane Wheatley firstname.lastname@example.org
"If they get their money in the end, why would they care?" -- M. Christo
One of the components of underwriting is to look at a person's collateral (in other words, their down payment amount). Why is this important? Because collateral signifies commitment to the property (the higher the commitment the better to both the lender and the seller). It's important to the seller because it says "hey, I'm serious! I REALLY want to buy your home." (Kinda like when you give a girl a diamond ring and ask her to marry you...the diamond ring signifies a degree of seriousness and commitment to wanting to take your relationship to the next level).
A high degree of commitment might be particularly important to any seller because they're highly motivated to sell their home. A higher degree of commitment warrants the assurance that their home is in fact going to get sold on "this" offer...psychologically it says I won't have to deal with another escrow and my deal will close on "this" escrow.
If someone decides to buy a $500,000 home and they put $150,000 (30%) as a down payment, that's how much they have to lose on the property. So naturally, the higher the down payment, the larger their commitment.
So ultimately, that's why they care. Homes are still being bought with as little as 3% down but a larger down payment signifies a greater commitment to the property which puts both lenders and sellers at ease.
A buyer who can make a larger downpayment will likely be more capable of adapting to changing loan program requirements.
One thing you may request of your loan officer in addition to your pre-qualification letter, is an automated underwriting approval (sometimes referred to as DU Approval), or additional language stating what your FICO scores are (if they are impressive) and stating that the loan officer has already verified your income and assets. This extra step will speak volumes to a seller.
This is a great question, and one I will try my best to answer.
Ultimately a seller cares about their bottom line. Which offer will net them the most for their home. As you put it, "they get their money in the end."
Keep this in mind though: With the mortgage meltdown, sellers know that the actual likelihood of their home falling out of escrow with a buyer that has a larger down payment is much lower. Also, if by chance the appraisal came in higher than the sale price, the buyer would be able to cover the difference with the large amount of cash they have available. Next, keep in mind that the listing agent also has an impact on this decision. Many agents believe that a larger down payment is a more "serious" or "stronger" buyer when in fact, from experience, if a buyer has been qualified by an experienced loan officer, there should be no problems with putting little down payment.
I also believe perception plays a big role in this. During the boom when anyone could get a home loan, agents didn't worry so much. Now, agents are much more skeptical of lenders and thus more likely to scrutinize the loan and its impact on the home sale.
I hope some of those reasons were able to help.
Good luck on your home purchase.
The bigger the down payment, the smaller risk the lender assumes. Which means there are fewer hurdles to overcome in getting a loan. Which means the easier it would be for the lender to approve the loan. Which means the greater the probability of closing the sale.
We hear of too many horror stories when escrow is near closing and the lender's requirements change, the buyers lose their loan, they are unable to complete the sale, and the sellers lose valuable marketing time when they took the property off the market while it was in escrow.
As you can see, the higher the initial deposit, the higher the down payment, the stronger the offer.