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Does the size of my down payment on a house affect the chances I'll be approved for a loan? Can a 50% down payment overcome a relatively low credit score?

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3 Answers 3

I am not a financial expert, but I'm pretty sure that it DOES matter.

When you take out a mortgage on a home, you are using the home itself as collateral. If you fail to make payments on that home, and go into foreclosure, the bank takes possession of your home.

With that understanding, imagine you borrow $500K for a purchase of a home. If the cost of the home was $1M, the bank will have more confidence they can recover the money they lent you (by selling the home should it go into foreclosure) than they would if the house was only worth $700K.

In effect, the larger your down payment, the easier it would be for the bank to recover their money should you go into foreclosure early on.

As far as 50% overcoming a low credit score... that's a very open-ended question. There are just too many factors at play to give a simple yes or no answer to that.

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Poor credit scores may require trying more lenders, or seller financing. It will also increase the interest rate you are required to pay for the loan. A Large down payment will definitely increase your chances of getting a loan from someone. –  SpecKK Aug 11 '10 at 18:32

Banks want to be paid back, and if you don't, then want to be able to sell your property for enough money to cover what you didn't pay back.

Your credit rating will determine the interest rate you pay, and this affects how much you can borrow because a higher interest rate means that you can borrow less on the same terms than you could with a lower interest rate.

Paying 50% down will bring your payment way down, of course, and will improve everything about your loan (debt to income ratio, debt to equity) but you'll likely still be charged the higher interest rate based on your credit rating.

This, of course, is contingent on the property's value appraising properly.

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One thing that a high down payment does is improve the chance that the seller will accept your offer. Sellers also want to know that your offer is a serious one, and the closer you are to an all-cash buyer, the better. I've heard of sellers letting OK offers sit on the table because they didn't like the down payment amount.

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