Expert: Hans Weber, Licensed Broker Associate - 2/1/2006

Question
Dear Sir,
We are planning on buying a Condo. We got a mortgage from a mortgage company with No Down Payment. It seems that some sellers require a down payment. I don't understand this. The mortgage company tells us that the seller has nothing to do with how much down payment we put in. My question is : Does the seller get affected by how much down payment we put in, should it matter ?
Thanks.

Answer
Dear Gus,

Thank you for your great question.

Your bank says you are approved for a mortgage of 100% of the value of the condo you want to buy.  That is fine, they will lend you money based on your credit and income history.  The bank will still need the property appraisal to be at least 100% of the mortgage amount.  If it is less, then the mortgage won't be enough for you to buy the property and either you will need to pay the difference in cash or the seller would have to reduce the contract price to the appraised value to sell to you.  This could be one reason the seller wants a downpayment.  Do you have any cash to make up the possible difference?  If you have 5 or 10% to put down at contract signing you can offer to do so to make the seller happy and still come to the closing with a 100% mortgage.

Then there are probably some condominium associations that have by-laws the require that buyers make a minimum downpayment.  They have these rules to help keep owners from walking out on their properties.  It is natural that an owner with no personal investment and 100% bank financing would be more likely to foreclose a loan than someone with their own cash invested.  Especially if the value of the property declines after the purchase date and the loan is now say $200,000 and the property can only be sold for $160,000.  Now in order to sell it you need to come up with $40,000 of your own money to pay off the bank.  Some people won't do that and walk out on the loan leaving the property in distress.

Hope this answers your question.

Sorry about the delay, the link was not opening.

Hans