Ricardo Bueno

M. Christo,

"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.

Best,
Ricardo Bueno - Wed Jun 4 2008, 00:53